Sherman Act - Horizontal Territorial Agreement - Explained
When is an Agreement Among Competitors About Territories Illegal?
Written by Jason Gordon
Updated at April 6th, 2023
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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
Discussion Question
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?
Practice Question
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?
Related Topics
- Antitrust Law (Intro)
- What is Antitrust Law?
- What are the Major Antitrust Laws?
- What government agency enforces antitrust law?
- What Sanctions are available under antitrust law?
- What is the Sherman Act of 1890 (Sherman Act)?
- What is a Contract, Combination, of Conspiracy in restraint of trade?
- What is Per Se Illegality and the Rule of Reason?
- What is a Monopoly?
- Herfindahl Hirschman Index (HHI) Definition
- What businesses are exempt from the Sherman Act?
- Horizontal Restraint Sherman Act?
- Sharing Information?
- Refusal to Deal?
- Territorial Agreement?
- Price Fixing?
- Resale restraint?
- Exclusive dealing?
- Tying products?
- Territorial agreements?
- What is Monopolization under the Sherman Act?
- What is the Clayton Act of 1914 (Clayton Act)?
- What is price discrimination under the Clayton Act?
- What are special arrangements prohibited under the Clayton Act?
- When are tying contracts an illegal restraint under the Clayton Act?
- When are reciprocal dealing contracts an illegal restraint under the Clayton Act?
- How does the Clayton Act regulate mergers and acquisition?
- FTC Act Antitrust Law