Legal Definitions - horizontal scheme

A horizontal scheme refers to illegal agreements or collaborations between businesses that are direct competitors in the same market. These schemes are a serious violation of antitrust laws because they eliminate fair competition, leading to higher prices, reduced choices, and lower quality for consumers. Instead of competing fairly, these businesses secretly work together to manipulate the market to their advantage.

Common types of horizontal schemes include:

• Price Fixing: When competing businesses agree to set, raise, or maintain prices for their products or services at a specific level, rather than letting market forces determine prices.
• Bid Rigging: When competitors secretly agree on who will win a contract that is open for bidding, often by submitting artificially high bids or refraining from bidding to ensure a pre-selected company gets the job.
• Market Allocation: When competing businesses agree to divide up customers, geographic areas, or types of products among themselves, promising not to compete in each other's designated "territories."

Here are some examples to illustrate how horizontal schemes operate:

• Example 1: Price Fixing in the Retail Sector

  Imagine three major electronics retailers, all operating stores in the same city and selling similar brands of televisions. Instead of competing on price, their regional managers secretly meet and agree to all raise the price of a popular 60-inch smart TV model by $200 simultaneously. This ensures that no single retailer loses customers to a cheaper competitor, and all three benefit from the inflated price.

  This illustrates price fixing because direct competitors (the electronics retailers) colluded to artificially inflate the price of a product, depriving consumers of the benefits of competitive pricing.

• Example 2: Bid Rigging in Public Works

  Consider a scenario where a city government announces a tender for a large-scale landscaping project for its public parks. Three prominent landscaping companies frequently bid on such projects. Before submitting their proposals, executives from these companies meet and decide that Company A will submit the lowest, winning bid, while Company B and Company C will submit significantly higher bids that are designed to lose. This ensures Company A secures the lucrative contract without genuine competition.

  This demonstrates bid rigging because competing firms conspired to predetermine the winner of a public contract, eliminating fair competition and potentially costing taxpayers more.

• Example 3: Market Allocation in Service Industries

  Two leading pest control companies operate across a large metropolitan area. Rather than competing for every customer, they agree that one company will exclusively serve all residential customers in the northern half of the city, while the other will exclusively handle all commercial clients in the southern half. They promise not to solicit business in each other's designated areas or customer segments.

  This is an example of market allocation because the two competitors divided the market by customer type and geography, agreeing not to compete in each other's assigned "territories," thereby limiting choices and potentially increasing prices for customers in those areas.