Question

A horizontal restraint of trade occurs when 2 or more competitors at the same level of distribution enter into a contract, combination, or conspiracy to restrain trade (see Exhibit 46.1). Many horizontal restraints fall under the per se rule; others are examined under the rule of reason. The most common forms of horizontal restraint are discussed in the following paragraphs.

horizontal restraint of trade

A restraint of trade that occurs when 2 or more competitors at the same level of distribution enter into a contract, combination, or conspiracy to restrain trade.

Vertical Restraints of Trade

A vertical restraint of trade occurs when 2 or more parties on different levels of distribution enter into a contract, combination, or conspiracy to restrain trade (see Exhibit 46.4). The Supreme Court has applied both the per se rule and the rule of reason in determining the legality of vertical restraints of trade under Section 1 of the Sherman Act. The most common forms of vertical restraint are discussed in the following paragraphs.

vertical restraint of trade

A restraint of trade that occurs when 2 or more parties on different levels of distribution enter into a contract, combination, or conspiracy to restrain trade.

What are the differences between a horizontal (Ch 46 / P.774) and vertical restraint of trade?

Answer 1

Horizontal restraints of trade occur among competitors at the same market level and often face scrutiny under antitrust laws, while vertical restraints involve parties at different levels of the supply chain and can also affect market competition but are reviewed through different legal lenses. Both practices are regulated to ensure fair competition and can be analyzed using either a per se rule or a rule of reason approach.

Step-by-step explanation:

The differences between a horizontal restraint of trade and a vertical restraint of trade lie in the level of the market that the agreement occurs and the nature of the entities involved. A horizontal restraint of trade occurs when two or more competitors at the same level of distribution - often competitors in the same market - enter into an agreement or collusion that restrains trade. This could include price fixing, agreements to divide markets, or other collusive activities that disrupt the competitive landscape. These practices are often reviewed under antitrust law and can be scrutinized using either the per se rule, where the restraint is automatically considered illegal, or the rule of reason, which considers the restraint's actual effect on competition.

In contrast, a vertical restraint of trade involves entities at different levels of the supply chain, such as manufacturers and retailers. Practices such as resale price maintenance, exclusive dealing, or tied selling fall into this category. As with horizontal restraints, vertical restraints are subject to antitrust laws and can be reviewed for their impact on competition, but the legal criteria for establishing their legality may differ. The antitrust law enforcement, namely the Federal Trade Commission (FTC) and the U.S. Department of Justice, are tasked with scrutinizing these practices to ensure they don’t detract from a fair and competitive market environment.