Occasionally you may encounter terms or concepts unique to antitrust issues, competition, and schemes to exploit purchasers. In this installment of “The Informed Purchaser,” let’s talk about market allocation.

Market allocation schemes are simple and basic agreements that severely limit competition. For example, “I won’t sell in your market if you won’t sell in mine.” These agreements are made between competitors to divide up sales territories or customers. They are agreements not to compete and – just like price fixing – they are illegal under state and federal antitrust laws.

The markets can be divided up in a variety of ways, including:

• By geographic area: Company A agrees to take customers in the northern part of the state, and Company B takes customers in the southern part;
• By customer type: Company A will only bid on food contracts for colleges, and Company B will only bid on food contracts for primary and secondary public school systems; or
• By product: Company A will only bid on toner, and Company B will only bid on copier paper.

When bidders agree to divide up customers or markets, and agree that they won’t compete with each other for the business that they are not “supposed” to win, it is the customer that pays the price -- and that price is almost always a higher one!