Sherman Act - Horizontal Territorial Agreement - Explained
When is an Agreement Among Competitors About Territories Illegal?
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Table of ContentsWhat is a Horizontal Territorial Agreement?Discussion QuestionPractice QuestionAcademic Research
What is a Horizontal Territorial Agreement?
Under the Sherman Act 1, a territorial agreement that allocates geographical areas among competitors may be a horizontal restraint of trade. In a horizontal territorial agreement, competing businesses enter into an agreement not to compete with or infringe upon another competitor within an exclusive geographic territory. The agreement not to compete is generally a naked restraint of trade that has no pro-competitive justification. As such, it is per se illegal under the Sherman Act.
Example: ABC Steel Inc., and 123 Steel Inc., are large steel suppliers in the US. They agree to allow ABC to services the entire Northeast and California markets, while 123 is allowed to service the rest of the US. Each company agrees not to sell in the others territory. This would be a naked restraint of trade with no apparent pro-competitive justification.
Next Article: Sherman Act - Horizontal Price Fixing Back to: ANTITRUST LAW
- Horizontal Restraint Sherman Act?
- Sharing Information?
- Refusal to Deal?
- Territorial Agreement?
- Price Fixing?
How do you feel about deeming territorial agreements to be illegal? Can you think of a scenario where a territorial agreement could have a pro-competitive justification?
ABC Steel and 123 Steel are two of the largest suppliers in the industry. ABC routinely bids against 123 to supply steel in most major construction projects across the country. ABC and 123 enter into an agreement whereby ABC will not bid on projects east of the Mississippi river and 123 will not bid on projects in the West. Are there any legal issues with this agreement?