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What are Horizontal Agreements and Hardcore Cartels?

Compliance Knowledge Base | Competition Law

Posted by: Morgan Rennie Published: Mon, 10 Sep 2018 Last Reviewed: Mon, 10 Sep 2018
What are Horizontal Agreements and Hardcore Cartels?

Horizontal agreements are created between two competing businesses working in the same economic market and can involve the sharing of information regarding pricing and product development, with the intention to enhance healthy competition in the market. Horizontal agreements can help business save costs and develop products faster and more effectively. However, if horizontal agreements transgress into create price fixing and preventing competition, then the agreement will effectively be infringing competition laws.

At times, horizontal agreements can be created to benefit the consumers by coordinating logistics to save business costs and to use the business capacity more effectively. On other occasions, when horizonal agreements are created between market rivals and the involvement of price fixing and pricing co-ordination are apparent, the agreement can be considered as prohibited.

No-Poach agreements are an example of horizontal agreements which are established between two businesses, with the purpose of refusing to hire one another's respective employees. There may be provisions built into these no-poach agreements which state that no cold-calling to each business' employees for recruitment purposes will occur.

Recently, no-poach agreements have been investigated by the US government and US businesses, due to the suspicion that these no-poach horizontal agreements are becoming anti-competitive in nature. In the US competition laws are referred to as anti-trust laws, and it has been criticised that no-poach agreements are infringing upon anti-trust laws. Therefore, during the early half of 2018 US Senator Cory Booker introduced a bill to establish that no-poach agreements are illegal when in the franchise context according to anti-trust law.

What are Horizontal Agreements and Hardcore Cartels?

Hardcore cartels are the agreements made along market division and therefore have a purpose to directly restrict competition. The members of hardcore cartels achieve their goals through price fixing, deciding market shares, allocating customers and bid rigging, all of which are completely anti-competitive in nature. These hardcore cartels then effectively increase market power for those involved in the agreement, to the disadvantage of consumers who no longer have a choice and receive products which have depleted in value due to the hardcore cartel agreement. Most of these anti-competitive hardcore cartels are conducted in secret to avoid penalisation from the relevant bodies.

In February 2017 UK competition authorities have been required to increase their vigilance and penalisation of anti-competitive behaviour as it has increased in severity in recent years. The UK Competition and Markets Authority (CMA) published its plan for 2017/2018 which demonstrates that the CMA will be increasing its surveillance and dealings with anti-competitive behaviour. There is specific reference to hardcore cartels, with reference to price fixing cartels and the associated anti-competitive practices.

Businesses in the UK and EU can no longer assume that a complacent attitude towards anti-competitive activity can continue. There is now more emphasis placed upon competition laws and the business conduct that is expected. Thus, knowledge and training of competition laws is essential.

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