Horizontal restraints are contractual agreements between competing firms that restrain trade, such as by fixing prices, limiting production, rigging bids or auctions, or artifically allocating markets or customers.
While horizontal restraints aren’t necessarily only anti-competitive—with some having pro-competitive effects as well—many cases of horizontal restraint, like price fixing, are purely anti-competitive. Horizontal restraints are prosecuted under Section 1 of the Sherman Act.
Horizontal restraints can be either tacit or explicit. Tacit versus explicit horizontal restraints is similar to naked versus ancillary restraints; naked restraints have no pro-competitive justification, while ancillary restraints present a mix of anti-competitive and pro-competitive effects that require Rule of Reason (a legal process to essentially weigh pros and cons) to determine legality.
The Supreme Court said this on defining naked restraints: “But where the sole object of both parties in making the contract as expressed therein is merely to constrain competition, and enhance or maintain prices, it would seem that there was nothing to justify or excuse the restraint.”
Meanwhile, as per rule of reason, any practice “to avoid the competition which has always been the policy of the common law to foster” is illegal.
Hence, similarly, explicit horizontal restraints are direct agreements to collude, while tacit horizontal restraints are informal or implied agreements whereas behavior is understood between competitors as opposed to being directly agreed upon. For example, a direct agreement between Microsoft and Sony to, say, split up the Asian market for their gaming consoles is explicit collusion, while each marketing department targeting different parts of the Asian market informally could be tacit restraint.
Note that naked restraints and explicit horizontal restraints are Per Se illegal—meaning they’re illegal no matter what (cartels are also per se illegal, and so on). Courts stopped using rule of reason on naked restraint or per se illegal collusion cases following the Addyston Cartel case of 1899.
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