Dividing Markets

Author:

Moneyzine Editor

2 mins

September 26th, 2023

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Definition

The term dividing markets is used to describe agreements between competitors to split markets and not compete with each other. Markets can be divided by geographic areas, products or services, or even customer type.

Dividing markets is illegal in many countries, and may also be considered a criminal offense in the United States under antitrust laws.

Explanation

Also known as dividing territories and market division, dividing markets involves collusion between competitors to refrain from competing in certain markets. Dividing a market can involve geographic areas, customer classes, products or services, or any combination thereof.

Competitors would agree to divide markets so they can realize extraordinary profits. By lowering or eliminating competition in a given market, the profit margins of the companies participating in the agreement will be higher.

For example, three competitors might agree to divide a state into three geographic regions they believe have equal sales potential. Two of the companies would then provide customers with prices or quotes that were unusually high; thereby allowing the company allocated the territory to realize higher profits than would be obtained if true competition existed.

In addition to dividing markets, anti-competitive practices may include bid rigging, boycotts, disparagement, dumping, exclusive dealing, price fixing, tying, as well as the unethical collection of business intelligence.

Anti-competitive laws in the United States were passed to promote fair competition for the benefit of consumers. This includes a collection of both federal and state laws that are an extension of antitrust laws such as the Sherman Antitrust Act of 1890, the Clayton Act of 1914, and the Federal Trade Commission Act of 1914.

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