Horizontal agreements are between two firms operating at the same level of the distribution process, such as two manufacturers or two distributors or two retailers. Vertical agreements are between firms at different levels of the same process such as an agreement between a manufacturer and a distributor, or between a distributor and a retailer or between a manufacturer and a retailer. Generally, horizontal pricefixing agreement, as between competitors who set the prices on their goods, are considered one of the worst violations of the Sherman Antitrust Act. Answers to Critical Thinking Exercises 1. This is a price fixing scheme because a price ceiling can cause price rigidity as all participants charge the maximum and it becomes an unspoken minimum.
Price competition is foreclosed and the scheme prevents pricing as a variable.
However, the Supreme Court rejected this argument. The court held that pricefixing is a per se violation, therefore, it was illegal no matter what the benefits were to clients in the state of Virginia. It is certainly illegal for Mutt and Jeff to enter into an agreement concerning the price of their services. Pricefixing is per se illegal under the Sherman Antitrust Act. The problem is that competitor's illegal concerted activity is usually inferred from circumstantial evidence.