Horizontal Agreement: Definition, Examples, and Importance
Horizontal agreements refer to a type of agreement where two or more companies operating at the same level in the supply chain, typically competitors, come together to create a common understanding to regulate their business dealings.
These agreements are known as horizontal because they involve competitors who are operating on the same level in the supply chain, rather than vertical agreements, which occur between companies at different levels in the supply chain, such as suppliers and retailers.
Horizontal agreements can include a variety of topics, such as pricing, product design, marketing, or production, and are commonly used to address collective issues or problems that arise in an industry.
Examples of horizontal agreements can include:
1. Price-fixing: An agreement between competitors to set prices at a certain level, which violates antitrust laws.
2. Quality standards: Companies agreeing to a certain quality level of products or services to be provided to customers.
3. Production standards: Companies agreeing to certain production standards to improve the overall quality of products or services.
4. Joint promotion: Competitors agreeing to collaborate on promotional activities, such as co-branding, to achieve a common goal.
The primary benefit of horizontal agreements is that they can improve the overall efficiency and competitiveness of an industry by creating a level playing field and reducing uncertainty. Additionally, they can promote collaboration and create opportunities for companies to benefit from shared knowledge and resources.
However, horizontal agreements can also be risky, as they can lead to reduced competition and higher prices, and violate antitrust laws. It is important to ensure that any horizontal agreement is legally compliant and does not negatively impact consumers or other market players.
In conclusion, horizontal agreements are essential in regulating business dealings between competitors, and can bring many benefits to industries if implemented appropriately. Companies should be cautious when entering into these agreements and seek legal advice to ensure they are working within the law.