Anti-competitive agreements, also known as anti-trust agreements, are agreements made between businesses with the intention of reducing competition in the market. Such agreements are prohibited under most competition laws worldwide, and companies found guilty of engaging in such practices may face significant fines and other penalties.
Types of Anti-Competitive Agreements
1. Price-Fixing
Price-fixing is one of the most common types of anti-competitive agreements. This is where two or more companies agree to set prices at a certain level, usually higher than they would be in a competitive environment. Price-fixing can take many forms, including setting minimum or maximum prices, creating price floors or ceilings, or agreeing to charge the same price for goods or services.
2. Market Allocation
Market allocation is where two or more companies agree to divide up the market among themselves and not compete for each other`s customers. For example, two companies might agree to split a city into two halves and only sell their products in their designated area.
3. Bid-Rigging
Bid-rigging is where two or more companies agree to coordinate their bids for government contracts or other lucrative opportunities. This type of anti-competitive agreement can result in higher prices for consumers, as the companies involved artificially inflate the cost of the project.
4. Exclusive Dealing
Exclusive dealing is where a company agrees to only sell its products or services to one distributor or retailer, effectively shutting out its competitors. This type of arrangement can be particularly damaging to small businesses, as they may not have the resources or negotiating power to secure exclusive deals.
5. Tying Agreements
Tying agreements are where a company requires a customer to purchase one product or service in order to obtain another. For example, a computer manufacturer might require customers to purchase a specific type of software in order to use their computers. This type of anti-competitive agreement can stifle innovation and lead to higher prices for consumers.
Conclusion
Anti-competitive agreements are detrimental to both consumers and the broader economy. While competition is necessary for innovation and growth, anti-competitive behavior can limit consumer choice, stifle innovation, and lead to higher prices. Companies found guilty of engaging in anti-competitive agreements can face significant financial penalties and harm to their reputation. As such, it is essential for companies to abide by competition laws and engage in fair and transparent business practices.