As businesses grow and compete in today`s global marketplace, they often engage in various types of agreements with their competitors. One of the most common of these agreements is known as a “horizontal agreement.” In this article, we will take a closer look at horizontal agreements in the context of the European Union`s competition law.
What is a Horizontal Agreement?
A horizontal agreement is an agreement between two or more companies at the same level of the supply chain. In other words, it is an agreement between competitors. Horizontal agreements typically involve the coordination of business activities, such as price fixing or market sharing, and can be highly beneficial for the companies involved. By working together, they can reduce costs, increase efficiency, and gain a competitive advantage.
However, horizontal agreements can also be harmful to competition if they restrict or distort competition in the market. For this reason, many countries have laws and regulations in place to prevent companies from engaging in anticompetitive practices.
Horizontal Agreements in the European Union
In the European Union (EU), horizontal agreements fall under the scope of Article 101 of the Treaty on the Functioning of the European Union (TFEU). This article prohibits agreements that may affect trade between EU member states and have as their object or effect the prevention, restriction, or distortion of competition within the common market.
Under Article 101, horizontal agreements are subject to a “rule of reason” analysis. This means that the EU considers the pro-competitive benefits of the agreement against its potentially anticompetitive effects. If the benefits outweigh the harms, the agreement may be allowed.
However, certain types of horizontal agreements are considered “hard-core” and are strictly prohibited under EU law. These include price fixing, market sharing, and bid rigging. Such agreements are presumed to have a significant negative impact on competition and are subject to automatic prohibition.
EC Guidelines on Horizontal Agreements
To provide guidance on how to assess horizontal agreements under EU competition law, the European Commission (EC) has published guidelines. These guidelines explain the principles and procedures that the EC follows when examining horizontal agreements.
According to the EC guidelines, horizontal agreements are generally considered to have a restrictive effect on competition if they have the following characteristics:
1. They restrict competition between the companies involved in the agreement.
2. They enable the companies involved to exert influence over the market.
3. They lead to a reduction in output, innovation, or quality.
4. They increase prices or prevent their decrease.
Horizontal agreements can be an effective way for companies to work together and gain competitive advantages. However, they can also be harmful to competition if they prevent, restrict, or distort it. Therefore, it is essential to understand the rules and regulations governing horizontal agreements in the EU.
By following the guidelines set out by the EC, businesses can ensure that their agreements are compliant with competition law. This will help them avoid costly fines and reputational damage while still benefiting from the advantages of cooperation and collaboration within the industry.