The Ultimate Guide to Market Allocation: What It Is and Why It's Illegal

LEGAL DISCLAIMER: This article provides general, informational content for educational purposes only. It is not a substitute for professional legal advice from a qualified attorney. Always consult with a lawyer for guidance on your specific legal situation.

Imagine two popular pizza restaurants, “Pete's Pizza” and “Gina's Pies,” are the only two in town. They're constantly competing on price, quality, and delivery speed, which is great for customers. One day, Pete and Gina meet secretly. Pete says, “This is exhausting. I'll only deliver to addresses north of Main Street if you only deliver to addresses south of Main Street.” Gina agrees. Instantly, competition vanishes. If you live north of Main, your only choice is Pete's. If you live south, it's Gina's. With no rival to keep them honest, both shops can now use cheaper ingredients, offer slower service, and raise their prices—and customers have no other option. This secret deal is the essence of market allocation. It's a poisonous agreement between competitors to not compete. Instead of fighting for customers' business in a free and open market, they slice up the market like a pie, giving each other a monopoly over a certain territory, customer base, or product. This conduct is considered one of the most serious violations of U.S. antitrust_law because it directly harms consumers and suffocates the free market.

• The Core Principle: Market allocation is an illegal agreement between two or more competing businesses to divide markets among themselves by territory, customer type, or product, thereby eliminating competition.
• The Impact on You: When market allocation occurs, you, the consumer or business customer, face higher prices, lower quality goods and services, and fewer choices, as companies no longer need to innovate or compete for your business.
• The Legal Consequence: Market allocation is a `per_se_violation` of antitrust law, meaning it is automatically illegal. The government does not need to prove it had a negative effect on the market; the agreement itself is considered a crime.

The concept of banning market allocation is deeply woven into America's economic identity. Its roots lie in the late 19th century, during the Gilded Age. This era saw the rise of massive industrial “trusts”—colossal conglomerates in industries like oil, steel, and railroads. These trusts, run by powerful “robber barons,” often used ruthless tactics to crush smaller competitors. One of their favorite tools was collusion, where supposed rivals would secretly agree not to compete, carving up the entire nation into private fiefdoms. Public outrage against these monopolies and their anti-competitive practices boiled over, leading to a landmark piece of legislation: the `sherman_antitrust_act_of_1890`. This act was the first major federal law designed to protect free competition and outlaw practices like price fixing, bid rigging, and market allocation. It established the principle that the American economy should be driven by open competition, not secret backroom deals. Later laws built upon this foundation. The `clayton_act_of_1914` strengthened the Sherman Act by specifying certain illegal practices, and the `federal_trade_commission_act` created the `federal_trade_commission` (FTC) as a key agency to police and prevent unfair methods of competition. Together, these laws form the bedrock of U.S. antitrust enforcement, with market allocation standing as one of the most clearly forbidden actions.

The primary statute that makes market allocation illegal is Section 1 of the Sherman Antitrust Act. The language is both powerful and broad:

“Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.”

In plain English, this means that any agreement or coordinated effort between competitors that unreasonably limits or restrains trade is against the law. Courts have consistently interpreted this to include agreements to divide markets. Because market allocation schemes are designed specifically to eliminate competition, they are considered a “hardcore” or `per_se_violation`. This means prosecutors do not have to undertake a complex analysis to show the agreement was harmful; the act of agreeing to divide markets is, by itself, illegal.

While antitrust law is heavily driven by federal statutes and enforcement, most states also have their own antitrust laws that often mirror federal law. These state laws allow state attorneys general to bring their own cases and protect consumers within their borders. Here is a comparison of how market allocation is handled at the federal level versus in four representative states:

For the average person or small business owner, this dual system means there are multiple avenues for justice. If you are a victim of a market allocation scheme, you may be able to report it to either your state attorney general or the federal authorities.

Market allocation isn't a single action but a category of illegal agreements. These schemes typically fall into one of three main buckets. The core of any case is proving that there was an agreement between competitors to cease competing in a specific area.

This is the most straightforward form of market allocation. Competitors agree to divide the map, giving each other an exclusive zone.

• What it is: Competitors carve out geographic territories and agree not to compete in each other's designated areas. One company takes the East Coast, another takes the West Coast. Or, on a local level, one contractor takes the north side of town, and another takes the south.
• Relatable Example: Imagine two national lawn care companies, “GreenGrow” and “LawnLush,” agree that GreenGrow will only operate in states west of the Mississippi River, and LawnLush will only operate in states to the east. A homeowner in Ohio who prefers GreenGrow's service is out of luck—they are forced to use LawnLush, regardless of price or quality, because of the illegal agreement.

Instead of dividing by geography, competitors divide the customers themselves.

• What it is: Competitors agree to split up existing customers or to not solicit certain types of customers. For example, they might agree that “Company A gets all the government contracts, and Company B gets all the private-sector contracts.”
• Relatable Example: Two commercial cleaning companies in a city agree on a customer split. “CleanSweep Inc.” agrees it will not try to win contracts from any businesses currently served by “Sparkle Services,” and vice versa. This “hands-off” agreement means businesses are trapped with their current provider, who now has no incentive to keep prices low or improve service, because they know their competitor won't try to win the account.

Here, competitors divide the market by the specific goods or services they offer.

• What it is: Competitors who produce a range of similar products agree to stop producing or selling certain items to avoid stepping on each other's toes.
• Relatable Example: Two medical device companies both manufacture basic and advanced heart stents. They secretly agree that Company X will stop selling basic stents and only focus on advanced ones, while Company Y will stop selling advanced stents and only sell basic ones. Now, a hospital that needs to buy both types of stents can't get a competitive bid from a single supplier. They are forced to buy from two separate monopolies, likely at a much higher total cost.

Understanding the key players helps clarify how these cases unfold.

• The Conspirators: These are the competing companies or individuals who make the illegal agreement. They are the defendants in any resulting legal action.
• The Government Enforcers:
  • The department_of_justice (DOJ) Antitrust Division: The DOJ is the primary federal agency responsible for criminal enforcement of the Sherman Act. They can bring felony charges against both corporations and the individuals responsible, seeking prison sentences and huge fines.
  • The federal_trade_commission (FTC): The FTC handles civil antitrust enforcement. It cannot bring criminal charges, but it can sue to stop anti-competitive conduct, break up illegal agreements, and order companies to pay back ill-gotten gains.
• The Victims: These are the consumers, businesses, and government agencies who paid higher prices or received lower quality goods and services because of the conspiracy.
• Private Plaintiffs: Antitrust laws empower victims to fight back. Any person or business harmed by a market allocation scheme can file their own lawsuit. If successful, they are entitled to `treble_damages`—three times the amount of the actual damages they suffered—plus attorney's fees. This powerful incentive encourages private citizens to help enforce the law.

If you are a small business owner, employee, or consumer who suspects market allocation is happening, or if you are being pressured to join such a scheme, it is critical to know what to do.

Be alert for warning signs of collusion among your suppliers or competitors:

• You notice that a certain company always wins bids in a specific region, while another company always wins them elsewhere.
• A long-time supplier suddenly refuses to sell to you because you are located in a competitor's “territory.”
• You hear a competitor say something like, “Don't bother bidding on that project, it's ours,” or “We handle the school district contracts, you guys can have the city contracts.”
• Prices for a particular product or service seem to rise in lockstep across all competitors for no clear economic reason (like a rise in raw material costs).
• Your business is allocated to a specific supplier by a group of other companies.

If a competitor approaches you with a proposal to divide territories, customers, or products, do not agree. Do not even hint at agreement. State clearly and unequivocally that you intend to compete fairly for all business. The agreement itself is the crime, so it is vital you are not part of it.

Preserve any evidence of the potential scheme. This is crucial for any future investigation.

• Save all communications: Keep any emails, text messages, or letters that suggest an allocation agreement.
• Take detailed notes: If the proposal happens in person or on the phone, immediately write down who you spoke to, the date and time, what was said, and who else was present. Be as specific as possible.

The doj_antitrust_division has a powerful tool called the Corporate Leniency Policy. Under this policy, the first company or individual to self-report an antitrust crime (like market allocation) and cooperate with the investigation can receive complete immunity from criminal prosecution. This creates a race to be the first to cooperate. If your company has been involved, this is the most important phone call you can make.

You can report suspected market allocation to the federal authorities. You do not need definitive proof; you only need a reasonable suspicion.

• To Report to the Department of Justice: Contact the DOJ Antitrust Division's Citizen Complaint Center. Information is available on their website.
• To Report to the Federal Trade Commission: Use the FTC's online Complaint Assistant.

Whether you are a victim or have been pressured to join a scheme, the law in this area is complex. A qualified antitrust lawyer can provide confidential advice on your rights, your potential liability, and the best course of action, including whether to pursue a private lawsuit for `treble_damages`.

Unlike a tax filing, there is no single “form” to fill out for a market allocation case. The critical documents are those you create.

• Formal Report to the DOJ/FTC: This is not a standardized form but a detailed narrative. When reporting, you should clearly and concisely describe the conduct you've observed, identify the companies and people involved, and provide any evidence you have collected.
• `Complaint_(legal)`: If you decide to file a private lawsuit, your attorney will draft a Complaint. This is the formal legal document that initiates the case. It lays out the facts, identifies the defendants, explains how their market allocation scheme harmed you, and asks the court for relief (typically, treble damages).
• Preservation of Evidence Letter: This is a formal letter sent by an attorney to the suspected conspirators, instructing them not to destroy any documents, emails, or data related to the matter, as it is now the subject of a potential legal claim.

The law on market allocation has been clarified and reinforced by several key Supreme Court decisions.

• The Backstory: Topco was a cooperative association of small- and medium-sized regional supermarket chains. To compete with large national chains, the members used Topco as their purchasing agent and sold products under the Topco brand. To ensure the members didn't compete with *each other*, the association's rules granted each member an exclusive territory for selling Topco-branded goods.
• The Legal Question: Was this territorial allocation agreement a reasonable business practice to help small players compete, or was it an illegal restraint of trade?
• The Ruling: The Supreme Court ruled that the agreement was a horizontal restraint (an agreement between competitors) and was therefore a `per_se_violation` of the Sherman Act. The Court stated that it doesn't matter if the agreement had some pro-competitive justifications; the act of competitors dividing territories is, by its nature, illegal.
• Impact Today: This case cemented the rule that market allocation among competitors is automatically illegal, regardless of any supposed “good reasons” for it.

• The Backstory: Two companies, BRG and HBJ, were the primary providers of bar review courses in Georgia. They entered into an agreement where HBJ would exit the Georgia market in exchange for BRG paying it a share of its revenue. After the agreement, BRG immediately raised its prices from $150 to over $400.
• The Legal Question: Was this agreement to eliminate a competitor from a geographic market an illegal market allocation scheme?
• The Ruling: The Supreme Court issued a swift and decisive opinion, holding that this was a “plain” and “classic” case of market allocation. The agreement was a naked restraint of trade and was illegal on its face.
• Impact Today: This case serves as a clear-cut example of both territorial and customer allocation. It reinforces that agreements not to compete are a direct violation of antitrust law, especially when they lead to immediate harm to consumers through price hikes.

• The Backstory: While primarily a `price_fixing` case, the circumstances involved elements of market restructuring. Apple, preparing to launch the iPad and its iBookstore, conspired with five major book publishers to change the industry's pricing model. Their goal was to disrupt Amazon's low-price dominance in the e-book market. This coordinated effort effectively restrained competition among the publishers.
• The Legal Question: Did Apple facilitate a horizontal conspiracy among publishers to raise and fix e-book prices?
• The Ruling: The court found that Apple had played a central role in orchestrating the conspiracy among the publishers. The agreement eliminated price competition and raised e-book prices for consumers.
• Impact Today: The *Apple* case demonstrates how modern, complex business arrangements, especially in digital markets, can still constitute classic antitrust violations. It shows that a powerful company can be held liable not just for its own actions, but for organizing a cartel of other competitors.

The fight against market allocation is far from over. Today, the most intense debates center on the technology sector. Critics argue that large digital platforms, sometimes called “gatekeepers,” may be engaging in new, more subtle forms of market allocation.

• App Stores: Are the rules imposed by Apple's App Store and Google's Play Store a form of market allocation, where the platform owner gives preferential treatment to its own apps and services while limiting the ability of third-party developers to compete?
• Online Marketplaces: Do dominant e-commerce platforms use their sales data to identify popular products and then launch their own competing versions, while simultaneously disadvantaging the original third-party sellers on their platform?
• “No-Poach” Agreements: A modern form of customer allocation involves “no-poach” and “non-solicitation” agreements, where companies agree not to hire or recruit each other's employees. The DOJ has prosecuted these as illegal market allocation, arguing that they restrain competition for skilled labor and suppress wages.

These issues are the subject of ongoing lawsuits, congressional hearings, and proposed legislation, representing the new frontier of antitrust enforcement.

Looking ahead, technology will continue to challenge our understanding of market allocation.

• Algorithmic Collusion: Could companies use sophisticated pricing algorithms that learn to collude without any direct human agreement? If two AIs independently figure out that the most profitable strategy is to “divide” the market and not undercut each other, does that constitute an illegal conspiracy? Regulators are grappling with how to detect and prosecute this “algorithmic collusion.”
• The Gig Economy: In the gig economy, are platform companies like Uber or DoorDash creating rules that prevent drivers or restaurants from competing freely, potentially allocating customers in ways that benefit the platform over the participants?
• Increased International Enforcement: As business becomes more global, antitrust authorities around the world are cooperating more than ever to crack down on international cartels that divide global markets.

The core principle—that competitors must compete, not collude—will remain. But the methods of enforcement and the definitions of a “market” and an “agreement” will have to evolve to keep pace with a rapidly changing economy.

• `antitrust_law`: A body of law designed to protect competition and prevent monopolies and cartels.
• `bid_rigging`: A form of collusion where competitors coordinate their bids on a project to pre-determine the winner.
• `collusion`: A secret, illegal agreement between two or more parties to limit open competition.
• `competition`: The process of rivalry between businesses seeking to win customers' business.
• `conspiracy`: A secret plan by a group to do something unlawful; in antitrust, it refers to the agreement to restrain trade.
• `department_of_justice` (DOJ): The U.S. federal executive department responsible for the enforcement of the law, including criminal antitrust violations.
• `federal_trade_commission` (FTC): A federal agency whose mission is the promotion of consumer protection and the elimination of anti-competitive business practices.
• `monopoly`: A situation in which a single company or group owns all or nearly all of the market for a given type of product or service.
• `per_se_violation`: An action that is considered automatically illegal under antitrust law, without any further inquiry into its actual effect on competition.
• `price_fixing`: An agreement between competitors to raise, lower, or stabilize prices or price levels.
• `rule_of_reason`: A legal doctrine used to interpret the Sherman Act; it requires a court to analyze the specific facts of a case to determine whether a practice unreasonably restrains trade. (It is not used for market allocation).
• `sherman_antitrust_act_of_1890`: The foundational U.S. antitrust law that makes market allocation and other anti-competitive conspiracies illegal.
• `statute_of_limitations`: The deadline for filing a lawsuit or initiating a prosecution, after which the claim is barred.
• `treble_damages`: A provision in antitrust law that allows successful private plaintiffs to recover three times their actual financial harm.

• `antitrust_law`
• `price_fixing`
• `bid_rigging`
• `monopoly`
• `collusion`
• `federal_trade_commission`
• `department_of_justice`