What is the key difference between horizontal and vertical price fixing?

The key difference between horizontal and vertical price fixing is that horizontal price fixing occurs among competitors at the same level of the supply chain, while vertical price fixing involves pricing agreements between different levels of the supply chain, typically between a manufacturer and a retailer.

Horizontal price fixing typically occurs when competing firms agree to set prices at a certain level, thereby eliminating competition and potentially harming consumers by leading to higher prices. This practice is considered anti-competitive and is illegal in many jurisdictions because it restricts free market competition.

On the other hand, vertical price fixing takes place when a manufacturer sets the price at which a product is to be sold at retail. This might involve a manufacturer insisting that retailers sell their product at a certain minimum price. While this type of arrangement can sometimes be legal, it can also raise legal concerns depending on how it affects competition in the market.

Understanding the fundamental roles of horizontal and vertical price fixing is essential in contract management, as it helps in recognizing the legality and ethical considerations surrounding pricing strategies within supply chains.