What Is a Market Allocation Agreement
A market allocation agreement, also known as a market sharing agreement or territorial allocation agreement, is a legal agreement between two or more competitors in a particular market. The agreement typically involves the division of a market, or a specific geographic area within a market, among the participating parties.
The purpose of a market allocation agreement is to prevent competition between the parties involved and ensure that each participant can operate in a designated area without any interference from the other party or parties. This type of agreement can be beneficial to smaller companies who are seeking to enter a market dominated by larger players, as it can provide a degree of protection and reduce the risk of direct competition.
However, market allocation agreements are illegal and violate antitrust laws in most countries including the United States, Canada, and the European Union. These laws prohibit agreements that restrict competition, such as price-fixing, dividing markets or customers, or agreeing not to compete with one another. Companies found in violation of these laws can face hefty fines and legal consequences.
It is important to note that market allocation agreements are different from legitimate collaborations or partnerships between companies, such as joint ventures or strategic alliances. These types of partnerships enable businesses to work together to achieve a specific goal, such as developing a new product or entering a new market, while remaining competitive in the market.
In conclusion, market allocation agreements are illegal and can have serious legal consequences. Companies should instead focus on developing legitimate partnerships and collaborations that promote competition, innovation, and growth in the market. It is essential for businesses to comply with antitrust laws to avoid hefty fines and damage to their reputation.