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Horizontal Restraints Defined

Horizontal Restraints Defined

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In a free market the market price is determined by supply and demand. Price fixing is highly frowned upon, and unless government-directed, declared illegal within the United States.
Horizontal restraints can affect the market price of goods in a variety of ways. Some of the ways that market price can be affected is through a joint venture between two companies. These two companies, through their joint venture, can engage in price fixing creating a market driven not by supply and demand, but by their own desires. Thanks in large part to the first section of the Sherman Antitrust Act, such a practice is deemed illegal and would be prosecuted in a Federal court of law.
Horizontal restraints can manifest in a variety of ways, therefore subjecting them to both the per se rule and the rule of reason employed by the court depending on the case. The per se rule occurs usually during a joint venture between companies, who engage in price fixing distorting the true market price. Since their infraction is blatantly and inherently obvious as an infraction of the Sherman Antitrust Act, per se is used.
However, many a joint venture does not result in price fixing. Many are common within the United States where two companies within the same sector, or within the same manufacturing group, see an inherent business gain from working together. While always causing some horizontal restraint, it is up to the court through the rule of reason to deem whether or not such a business venture violates Section 1 of the Sherman Antitrust Act.
Horizontal restraints can be present in many business practices ordinary citizens take for granted at face value as normal. Trade associations are common within the United States, as they bring together sector professionals in order for knowledge to be passed across the sector with greater ease. However, it can still be subject to the Sherman Act under Section 1. Take, for example, a case in 1966 dealing with the American Medical Association. Many Americans consider the AMA to be the end all, be all of what can be considered medically correct. Therefore, the AMA needs to make sure they pick their words carefully.
In 1966 the AMA declared chiropractics to be an unscientific cult. While this would have nothing to do with price fixing, it could affect the natural market price in which chiropractors operate. Moreover, due to the AMA’s stature, their assessment would eliminate a medical competitor, in this case, the entire chiropractic profession. Therefore, the AMA was found in violation of Section 1 of the Sherman Act.
Under the Sherman Act, the notion of horizontal restraint to interstate commerce is very important. There are many different ways it can manifest itself, from a joint venture between companies to a trade association overstepping its boundaries. However, all infractions are either subjected to the per se rule or the rule of reason. The overall goal of the Sherman Act is to achieve the free market’s ability to exist in interstate commerce.

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