1. What are the two main categories of horizontal practices that would raise antitrust concerns? (1 point)
2. Briefly describe a real-world example for each of those two main categories. Avoid using the cases presented in the case studies in the Antitrust Revolution textbook. (2 points)

Question

BlackTom AI · Accepted Answer

To understand the question, we first identify the two main categories of horizontal practices that typically raise antitrust concerns among competing firms operating at the same level in the market.

First, consider price-fixing. This category covers any agreement among competitors to set prices or output levels, rather than competing on the merits of their own products. A classic real‑world illustration is a cartel in which firms agree on the prices at which they will sell a product or on the terms of sale, effectively eliminating normal price competition. A well-documented example is the lysine cartel in the amino acids market, where several producers coordinated prices and terms over a period of time, resulting in artificially higher prices for buyers. This demonstrates how horizontal coordination among rivals directly tamps down competitive pricing.

Second, think about market allocation (also called market division or territorial/customer allocation). In this category, competing firms divide markets among themselves, whether by geography, customer type, or specific sales channels, so that each firm reduces or eliminates competition in its allocated segment. A real-world instance is the practice among certain manufacturers of coordinating to split markets for particular products or technologies, such that each firm agrees not to compete in the others’ designated areas. For example, major players in certain high‑value electronics or component sectors have, at times, been accused of agreeing to refrain from competing in each other’s geographic regions or customer groups, effectively carving up the market and reducing competitive pressure on prices and terms in those segments.

Now, to illustrate these categories with concrete, real-world scenarios not drawn from the Antitrust Revolution case studies: 
- Price fixing: Lysine cartel (amino acids) involved several producers agreeing on price levels and terms, which kept prices above competitive levels and harmed purchasers by removing normal price competition. This is a straightforward example of horizontal collaboration to control pricing.
- Market allocation: A situation where multiple panel manufacturers agree to designate specific geographic regions or customer segments to each other, thereby avoiding head-to-head competition in those areas. By dividing the market, firms reduce competitive pressure on prices and innovation within the allocated segments, which is anticompetitive because consumers or downstream buyers lose the benefits of rivalry.

In summary, the two main horizontal antitrust concerns are (1) price-fixing/price coordination and (2) market allocation or division of markets. The lysine cartel demonstrates the price-fixing facet, while market allocation examples show firms limiting competition by segmenting markets. The key ideas are that these practices involve collusion among competitors at the same level of the market, and both undermine the core consumer welfare goals that antitrust law seeks to protect by preserving competitive dynamics.

Econ 142CW Spring 2025 Homework 3

1. What are the two main categories of horizontal practices that would raise antitrust concerns? (1 point) 2. Briefly describe a real-world example for each of those two main categories. Avoid using the cases presented in the case studies in the Antitrust Revolution textbook. (2 points)

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