Do companies also know for a better lack of words armistice? When searching for non compete agreements everything that comes up are agreements between companies and employees, but do whole companies also have non compete agreements with other companies? This is akin to price fixing, but would include more, since competition is not only restricted to price. I wonder if companies which are not allowed to merge because of monopoly laws have such non compete agreements. What are such non compete agreements called? Because right now this term seems to only apply to contracts between companies and employees.
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$\begingroup$ Not completely the same, so I won't make it an answer, but this was big news $\endgroup$– MarsCommented Nov 21, 2019 at 5:04
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$\begingroup$ Would be interesting to know how that came out in the end. $\endgroup$– HakaishinCommented Nov 21, 2019 at 7:19
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$\begingroup$ The companies paid a combined total of USD 415M in a settlement. ( If they hadn't settled, they may have paid up to USD 9B though... ) $\endgroup$– MarsCommented Nov 21, 2019 at 7:20
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1$\begingroup$ This is a really interesting question. We spend so much effort trying to get countries to compromise - to give up a claim to a parcel of land in exchange for an end to hostilities, to increase eligibility for visa-free travel in exchange for lower tariffs, etc., but it seems weird and almost unethical for companies to do this - e.g. for Toyota to agree to stop advertising in Pittsburgh in exchange for better steel prices from local firms that are heavily tied to GM and Ford. $\endgroup$– Robert ColumbiaCommented Nov 21, 2019 at 13:20
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2$\begingroup$ What you describe is called "cartel" and happens literally all the time ... but knowing that its against competition and usually happens to the disadvantage of "new competitors" - and the customers, many countries try to fight said cartels. Most recent case I know was a cartel of beer brewers in Germany who were charged to pay over 700 mill € (in sum over all partners). It was discovered after one of the partners got weak knees and pleaded guilty, helping the authorities. But usually it takes a long time to find them $\endgroup$– eagle275Commented Nov 22, 2019 at 10:19
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4 Answers
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This is known as dividing markets or market allocation, and it is against the law in the US, the EU, and I imagine in most countries with antitrust laws.
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15$\begingroup$ Which is not to say that they don't. $\endgroup$ Commented Nov 20, 2019 at 19:48
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5$\begingroup$ @chrylis-onstrike- it does, however, mean that all such agreements (unlike many types of employee non-compete agreements) are legally unenforceable and hold only while all parties want to participate. $\endgroup$– PeterisCommented Nov 20, 2019 at 20:51
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1$\begingroup$ @chrylis-onstrike- Some references and examples would greatly improve your comment. $\endgroup$– GiskardCommented Nov 20, 2019 at 21:34
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$\begingroup$ @Peteris There are exemptions that can make such agreements legal. E.g. geoblocking is a thing, and it effectively stops resellers of the same product or service in different countries from competing for each others customers. $\endgroup$– GiskardCommented Nov 20, 2019 at 21:35
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2$\begingroup$ @Giskard in particular, the EU regulation 2018/302, effective since 22 March 2018, explicitly aims to prohibit geoblocking within EU - eur-lex.europa.eu/content/news/… ; it does leave certain kinds of geoblocking legal, but that's the choice of the legislator, there's nothing that the companies could do to make "such argreements" and geoblocking legal if the legislative branch wanted otherwise. $\endgroup$– PeterisCommented Nov 20, 2019 at 22:43
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Real life is more complicated than that. For example Companies A and B might be competing in the same market sector, but then collaborate on producing a new product aimed at a particular niche in the market. It is quite likely the legal agreement for the collaboration will state that neither company will individually develop or market a product to compete with the joint venture.
FWIW I know of one case (through personal involvement) where one of the companies broke the intention of such an agreement (which specified the size, weight, and power output of an engine) by designing something that met the specification but was smaller and lighter than the parameters specified in the non-compete agreement. The other company in the collaboration didn't think this was technically possible, until they discovered they were wrong.
Not "nice" behavior, but perfectly legal. Of course the company that "broke" the agreement had intended to break it right from the start. They just didn't tell the other collaborator how good their designers were beforehand. Getting into a situation where the customer has two products apparently produced by "competitors" to choose from, but you make a profit whichever one they choose, is a good place to be!
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Would you consider something like Apple Records vs Apple Computer to be a non-compete? There were legal battles over trademark, and early on "As a condition of the settlement, Apple Computer agreed not to enter the music business, and Apple Corps agreed not to enter the computer business." This was just the first of many legal interactions between the two parties, each one ending (for a time) in some sort of agreement that lasted some period of time.
The heart of the issue is how each could keep using Apple as a trademark, requiring them to be in different industries. The various agreements dealt with how to define which markets each company dealt in, thus restricting the other from competing in it.
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"Non-competing" means that they are going to simultaneously raise their prices high with shorting actual production.
This existed as long as humans exist on this planet, and is called "cornering the market".
Every company wants to corner the market it exists on. Because it will increase their profits.
Consider two companies. We have for them that they both gain a surplus if they are going for cornering a market. But when you consider more companies, the harder it is going for them to corner, because they get increased opposition from "dissenting" companies who can fail their "non-compete agreement" by slightly changing the product, or simply by releasing it under different law. Chinese law for example, does not recognize laws from other countries.
If you look inside more philosophically, the intellectual property laws are already behave as they are "non-compete laws", but the antitrust laws are behaving as they are "compete laws", making it extremely difficult to actually corner a market this days.
Any corners you can see, like stock corner, when millions of people are waiting to buy single share of Apple stock or other "precious commodity" are actually only temporal corners. Like the Great Internet Bubble, there is nothing left of those companies like Netscape etc.
