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What is output limitation?
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Output limitation occurs when two or more competitors agree to limit or control the volume, or sometimes the variety, of goods or services they produce or supply. Agreements that restrict or reduce output will inherently result in price increases. Such arrangements may also have other anti-competitive effects, for example, by aligning product quality and/or facilitating price collusion between suppliers.
Output limitation is a serious form of anti-competitive conduct and could lead to severe penalties for the companies and individuals involved.
Types of output limitation
Output limitation arrangements may involve the following:
- Production or sales quotas: companies collectively set the quantity of the products they will produce and/or sell.
- Agreements to control capacity: companies agree to limit their capacity to supply goods or services. This is a somewhat indirect way of achieving the same outcome as setting production or sales quotas. Agreeing to reduce production capacity will inevitably result in lower production than there would otherwise be and consequently higher prices.
- Agreements to limit or coordinate investment plans: companies agreeing on how much they plan to invest in production capacity will result in similar outcomes as direct output limitation. If the agreement results in less investment, this will result in lower production and higher prices relative to the situation where no such agreement exists.
What should I do?
Competitors should make production and investment decisions independently.
Hypothetical examples
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