Example for Horizontal Agreements

Horizontal agreements refer to agreements made between players that belong to the same market or industry. Often, these agreements are made between competitors, and they can have significant impacts on the market. To help understand what a horizontal agreement can look like in practice, we’ll discuss an example of such an agreement in this article.

One of the most well-known examples of a horizontal agreement is the OPEC cartel. OPEC is an international organization comprising the world`s major oil-producing nations, which are all competitors in the oil industry. The organization regularly meets to agree on production limits and set prices for oil in the market.

By coordinating production levels and prices, OPEC is able to exert a significant amount of control over the global oil market. Without these agreements, the market would be more volatile and unpredictable, which could lead to price fluctuations that would make it difficult for all players to maintain profitable businesses.

Another example of horizontal agreements can be found in the telecommunications industry. Many telecom companies have entered into agreements with each other to share network infrastructure or to establish a common standard for their products. These agreements can help reduce costs, increase efficiency, and make it easier for consumers to switch between providers.

For example, in Europe, telecoms companies have agreed on a common standard for their mobile networks, which means that customers can switch providers while still keeping their phone number. This makes it easier for customers to choose a provider based on other factors, such as price or service quality, without having to worry about the difficulty of switching.

However, not all horizontal agreements are beneficial for consumers or the market as a whole. For example, price-fixing agreements between competitors can lead to higher prices for consumers and stifle competition. These types of agreements are often illegal, and companies that engage in them can face significant fines and other legal penalties.

In conclusion, horizontal agreements can take many different forms and can have both positive and negative impacts on the market. When used ethically, they can help reduce costs, increase efficiency, and lead to better outcomes for consumers. However, when used unethically, they can lead to higher prices, reduced competition, and other negative consequences. As always, companies should tread carefully when entering into any type of agreement with competitors and ensure that they are acting in the best interests of their customers and the market as a whole.