Legal Definitions - horizontal restraint

A horizontal restraint refers to an agreement or concerted action among competing businesses that operate at the same level of the supply chain. These types of agreements are generally illegal under antitrust laws because they reduce competition and can harm consumers by leading to higher prices, lower quality products or services, or less innovation.

Here are some examples to illustrate this concept:

• Example 1: Price Fixing Among Retailers

  Imagine three major electronics stores in a city, all selling the same popular brand of smart televisions. Instead of competing on price, their store managers secretly meet and agree that they will all sell a specific model of TV for no less than $800. This agreement eliminates price competition among them for that product.

  This illustrates a horizontal restraint because the three electronics stores are direct competitors at the same level of the retail market, and their agreement to fix a minimum price directly restricts competition, potentially forcing consumers to pay more.

• Example 2: Market Allocation by Software Developers

  Consider two independent software development companies that both create project management tools for small businesses. They agree that Company A will only market its software to businesses in the manufacturing sector, while Company B will exclusively target businesses in the healthcare sector. This means neither company will compete for clients in the other's designated market.

  This is a horizontal restraint because the two software companies are competitors offering similar services, and their agreement to divide the market by industry sector eliminates competition between them for potential customers within those sectors.

• Example 3: Bid Rigging for Public Contracts

  Suppose three landscaping companies are bidding on a contract to maintain all public parks for a city. Instead of each submitting their best competitive offer, they secretly coordinate. Company X agrees to submit the lowest bid, while Company Y and Company Z submit significantly higher bids, ensuring Company X wins the contract without true competition.

  This demonstrates a horizontal restraint because the three landscaping companies are direct competitors vying for the same contract, and their coordinated bidding strategy (bid rigging) artificially manipulates the competitive process, preventing the city from receiving the most competitive price.