Market Allocation

Definition

Market allocation refers to the practice of dividing up a market or customer base among competitors, often through explicit agreements or coordinated actions, in order to avoid direct competition and maintain higher prices or profit margins. This term is particularly relevant in the context of common business crimes.

5 Must Know Facts For Your Next Test

1. Market allocation is considered a form of price fixing, as it allows competitors to maintain higher prices by avoiding direct competition.
2. Market allocation can take various forms, such as geographic division, customer allocation, or product line specialization.
3. The practice of market allocation is illegal under antitrust laws in many countries, as it undermines competition and harms consumers.
4. Penalties for engaging in market allocation can include heavy fines, criminal charges, and even imprisonment for individuals involved.
5. Effective detection and enforcement of market allocation schemes can be challenging, as they often involve complex and covert arrangements among competitors.

Review Questions

• Explain how market allocation can be considered a form of price fixing and its impact on competition.
  • Market allocation allows competitors to avoid direct competition and maintain higher prices, effectively functioning as a form of price fixing. By dividing up the market, competitors can charge prices above the competitive level, which harms consumers through reduced choice and higher costs. This practice undermines the fundamental principles of a free market and is considered an anticompetitive behavior that violates antitrust laws.
• Describe the different ways in which market allocation can be implemented and the potential legal consequences for businesses and individuals involved.
  • Market allocation can take various forms, such as geographic division, customer allocation, or product line specialization. Regardless of the specific method, the goal is to limit competition and maintain higher prices. These practices are illegal under antitrust laws in many countries, and the penalties can be severe, including heavy fines for the businesses involved and even criminal charges and imprisonment for individuals. Effective detection and enforcement of market allocation schemes can be challenging, but regulatory authorities are increasingly focused on identifying and prosecuting these anticompetitive behaviors.
• Analyze the role of market allocation in the context of common business crimes and its broader implications for the economy and society.
  • Market allocation is considered a common business crime because it undermines the fundamental principles of a free market and harms consumers through reduced competition and higher prices. By dividing up the market, competitors can effectively create a monopolistic or oligopolistic environment, which allows them to charge prices above the competitive level and extract higher profits. This practice not only harms consumers but also distorts the efficient allocation of resources within the economy, leading to suboptimal outcomes for society as a whole. The broader implications of market allocation include reduced innovation, limited consumer choice, and a general erosion of trust in the fairness and integrity of the business environment. Addressing market allocation and other anticompetitive practices is crucial for promoting a healthy, competitive, and equitable economic system that benefits both businesses and consumers.

Related terms

Cartel: A cartel is an agreement among competitors to control prices, production, or distribution of a product or service, effectively dividing up the market among the participants.

Collusion: Collusion refers to an agreement between two or more parties to limit open competition and manipulate the market to their mutual benefit, often through practices like market allocation.

Antitrust Law: Antitrust laws are designed to promote fair competition and prohibit anticompetitive practices like market allocation, which are considered illegal under these laws.