Customer Allocation Arrangements

1. Introduction

Customer allocation arrangements are agreements, understandings, or coordinated practices in which competitors divide or reserve particular customers, customer groups, accounts, or categories of buyers among themselves instead of competing freely for those customers.

They are a classic form of horizontal market allocation. The arrangement may operate expressly—for example, “Company A will serve Customer X and Company B will serve Customer Y”—or indirectly through practices such as:

• agreeing not to approach each other's customers;
• dividing customers according to geography, industry, size, or purchasing volume;
• allocating government or corporate accounts;
• agreeing which competitor will receive particular clients;
• refraining from bidding for customers allocated to another competitor;
• exchanging customer lists to facilitate non-compete arrangements;
• allocating new customers while allowing each firm to retain its existing customers.

Customer allocation is generally treated as particularly serious competition-law conduct because it can eliminate competition directly at the level where customers make purchasing decisions.

2. Basic Concept

The essential idea is:

Competitors replace competition for customers with an agreement about who will receive those customers.

Example

Suppose A, B and C are competing suppliers.

They agree:

• A will supply Customer X;
• B will supply Customer Y;
• C will supply Customer Z;
• none will solicit the others' allocated customers.

Even if prices remain unchanged, the arrangement can substantially reduce competitive pressure because each customer loses the opportunity to obtain competing offers.

3. Forms of Customer Allocation

A. Named-customer allocation

Competitors identify specific customers and agree that only one competitor will approach them.

Example:
Three software suppliers agree that Supplier A will handle Microsoft, Supplier B will handle Amazon, and Supplier C will handle Google.

B. Existing-customer allocation

Competitors agree to leave each other's existing customers alone.

This can appear less aggressive because firms are merely “respecting” existing relationships. However, it may still prevent customers from receiving competing offers.

C. New-customer allocation

Competitors divide customers who enter the market after the agreement.

For example, new customers are assigned according to a predetermined rotation.

D. Customer-category allocation

Competitors divide customers by characteristics such as:

• industry;
• annual turnover;
• geographic location;
• customer size;
• product requirements;
• public/private status.

E. Bid or tender customer allocation

Competitors decide in advance which firm will pursue a particular customer or tender.

This frequently overlaps with:

• bid rigging;
• cover bidding;
• bid rotation;
• market sharing.

F. Geographic/customer hybrid allocation

Competitors divide customers geographically while retaining flexibility for particular accounts.

For example:

Firm A receives all customers in Northern Region, while Firm B receives customers in Southern Region.

4. Customer Allocation Under Competition Law

Customer allocation is ordinarily analysed as a form of market sharing.

In jurisdictions applying a prohibition on agreements that restrict competition by object, an agreement between competitors to allocate customers can be especially problematic because the parties have deliberately removed competition for those customers.

The analysis normally considers:

1. whether the parties are competitors;
2. whether there is an agreement or concerted practice;
3. whether customers have been allocated;
4. whether the arrangement restricts competition;
5. whether the conduct is horizontal;
6. the duration and scope of the arrangement;
7. the market affected;
8. whether the arrangement involves tenders or public procurement;
9. whether the parties possess market power;
10. whether any statutory exemption or legitimate collaboration applies.

5. Customer Allocation vs. Legitimate Customer Segmentation

Not every allocation of customers is automatically unlawful.

A distinction must be made between competitor agreements and legitimate commercial segmentation.

Potentially legitimate

A manufacturer may appoint:

• one distributor for one territory;
• another distributor for another territory;

subject to the applicable vertical-restraint rules and circumstances.

High-risk

Two competing manufacturers agree among themselves:

“You will take these customers, and we will take those customers.”

The second situation directly suppresses competition between rivals.

6. Customer Allocation and Market Power

Customer allocation can be problematic even where the parties do not collectively possess overwhelming market share, particularly where the arrangement is inherently directed toward eliminating rivalry.

However, market power remains important when assessing:

• actual competitive effects;
• foreclosure;
• market impact;
• efficiencies;
• duration;
• ability to harm customers;
• possible exemptions.

The greater the combined importance of the participating firms, the greater the potential competitive significance.

7. Customer Allocation and Pricing

Customer allocation and price fixing frequently occur together.

For example:

Competitors agree that Firm A will supply Customer X and Firm B will supply Customer Y, while both agree to charge the same price.

This creates two separate competitive restrictions:

1. customer allocation, and
2. price coordination.

Even without explicit price fixing, allocation may indirectly facilitate higher prices because the customer cannot credibly threaten to switch to another competitor.

8. Customer Allocation and Bid Rigging

Customer allocation is particularly significant in procurement markets.

Suppose four competitors regularly compete for government contracts. They agree:

• Firm A gets Tender 1;
• Firm B gets Tender 2;
• Firm C gets Tender 3;
• Firm D gets Tender 4.

The losing firms may submit deliberately uncompetitive bids.

This can constitute a combination of:

customer allocation + bid rigging + cover bidding + bid rotation.

The relevant “customer” may therefore be a government agency, hospital, corporation, university, or other contracting entity.

9. Evidence of Customer Allocation

Competition authorities may examine both direct and circumstantial evidence.

Direct evidence

Examples include:

• written agreements;
• emails;
• WhatsApp messages;
• meeting minutes;
• spreadsheets allocating accounts;
• customer-allocation lists;
• instructions to sales staff;
• admissions by participants.

Circumstantial evidence

Authorities may examine:

• sudden disappearance of competing bids;
• stable customer territories;
• repeated customer rotation;
• unusual bidding patterns;
• competitors refusing to approach particular accounts;
• parallel conduct accompanied by communications;
• unexplained customer-sharing patterns.

10. Key Case Laws

1. United States v. Topco Associates, Inc. (1972)

The U.S. Supreme Court examined an arrangement involving grocery-store products and territorial/customer restrictions among competitors.

Topco, a cooperative of independent grocery retailers, used territorial restrictions that limited where member firms could sell Topco-branded products.

The Supreme Court treated the horizontal territorial allocation as a serious restraint of trade.

Principle

A horizontal arrangement dividing markets among competitors can attract per se treatment under U.S. antitrust law.

Relevance

The case illustrates the fundamental concern behind customer allocation: competitors should not determine among themselves which customers or territories each competitor will serve.

2. United States v. Sealy, Inc. (1967)

Sealy licensed manufacturers to produce and sell mattresses under its trademark while imposing territorial restrictions.

The Supreme Court found that the arrangement effectively allocated territories among competing manufacturers.

Principle

An arrangement that appears to be a licensing or distribution structure may nevertheless constitute unlawful horizontal market allocation where competitors use it to divide markets.

Relevance

The case is useful for analysing arrangements where customer allocation is disguised through contractual distribution mechanisms.

3. Palmer v. BRG of Georgia, Inc. (1990)

BRG and Harcourt Brace Jovanovich were competitors in the Georgia bar-review market.

They entered an agreement under which BRG received exclusive rights in Georgia while Harcourt agreed not to compete there, with the parties also coordinating the pricing arrangement.

The Supreme Court treated the agreement as a classic market-allocation arrangement.

Principle

An agreement between competitors to divide territories and prevent competition can constitute a per se antitrust violation.

Relevance

The case demonstrates how an agreement allocating customers or territories can be unlawful even where it is embedded in a broader commercial relationship.

4. United States v. Andreas (2000)

The case concerned a conspiracy involving the lysine industry and coordination among major producers.

The evidence involved coordination concerning customers, prices, production and market conduct.

Principle

Customer allocation can form part of a broader horizontal conspiracy where competitors coordinate their commercial dealings with customers.

Relevance

The case demonstrates the importance of examining customer allocation together with pricing, output and communication evidence rather than treating each act in isolation.

5. United States v. Apple Inc. (2013)

Although principally concerning price coordination in the e-books market, the case illustrates the broader antitrust principle that competitors cannot use agreements or coordinated arrangements to alter competitive conditions for customers.

The court examined coordinated conduct affecting the relationship between suppliers, distributors and consumers.

Principle

Competition law examines the substance and competitive consequences of coordination rather than merely the formal structure of commercial agreements.

Relevance

The case is useful where customer allocation is incorporated into a broader strategy for controlling customer-facing competition.

6. Ahlström Osakeyhtiö v. Commission — Wood Pulp (1988)

The European Court of Justice considered coordinated conduct among producers in the international wood-pulp market.

Although the case was not a conventional customer-allocation case, it is important for understanding the evidentiary distinction between legitimate parallel conduct and unlawful coordination among competitors.

Principle

Competition authorities must establish coordination rather than merely infer an infringement from economically similar behaviour.

Relevance

This is particularly important in customer-allocation investigations where firms may independently develop similar customer strategies without actually agreeing to divide customers.

7. Consten and Grundig v. Commission (1966)

The European Court of Justice examined an exclusive distribution arrangement involving territorial protection.

The Court treated the arrangement as restricting competition because it protected a distributor from competition from parallel imports.

Principle

Restrictions that partition markets can undermine the integrated competitive market.

Relevance

The case provides foundational European competition-law reasoning concerning territorial and market partitioning, which can be relevant when customer allocation operates through distribution arrangements.

8. Commission v. Volkswagen AG (2000)

The European Court of Justice considered restrictions imposed within Volkswagen's distribution system that limited cross-border sales.

The case demonstrates the competition-law concern with measures that prevent customers from obtaining competing offers from alternative suppliers or distributors.

Principle

Contractual mechanisms that partition markets and restrict cross-border customer access can violate competition rules.

Relevance

It is particularly relevant to customer allocation arrangements implemented through distribution networks rather than an express “customer-sharing” agreement.

11. Customer Allocation in the European Union

Under Article 101 TFEU, agreements between undertakings that restrict competition can be prohibited.

Horizontal agreements allocating:

• customers;
• markets;
• territories;
• sources of supply;

are generally regarded as particularly serious restrictions.

Customer allocation may therefore constitute a restriction by object, meaning that authorities may not need to demonstrate extensive actual effects in the same manner required for conduct whose restrictive character must be established through effects analysis.

12. Customer Allocation Under U.S. Antitrust Law

Section 1 of the Sherman Act is central.

The classic U.S. approach treats horizontal market allocation as one of the categories capable of receiving per se treatment.

Important considerations include:

• whether the parties are actual or potential competitors;
• whether the agreement allocates customers or territories;
• whether the arrangement is horizontal;
• whether there is an actual agreement;
• whether the parties are genuinely independent competitors.

A unilateral decision by one firm not to pursue a particular customer is fundamentally different from a bilateral agreement between competing firms that neither will pursue the other's customers.

13. Customer Allocation in India

Under Section 3(3)(c) of the Competition Act, 2002, agreements between enterprises or persons engaged in identical or similar trade or provision of services that share or allocate markets or sources of production or provision of services are specifically addressed.

Customer allocation can therefore fall within the broader concept of market allocation.

The statutory presumption associated with specified horizontal agreements makes customer-allocation arrangements particularly important in Indian competition-law analysis.

Relevant Indian cases

Excel Crop Care Ltd. v. Competition Commission of India (2017)

The Supreme Court considered cartel conduct in the supply of aluminium phosphide tablets to the Food Corporation of India.

The case is important for understanding horizontal coordination and the competition-law treatment of cartel arrangements.

Relevance: Where customer allocation occurs alongside coordinated tender participation, the conduct may be analysed as part of a broader cartel.

Competition Commission of India v. Steel Authority of India Ltd. (2010)

The Supreme Court considered the framework governing competition-law investigations and the Competition Commission's jurisdiction.

Relevance: The decision is important for understanding procedural and jurisdictional aspects of competition investigations, including investigations into potentially restrictive agreements.

Rajasthan Cylinders & Containers Ltd. v. Union of India (2018)

The Supreme Court considered alleged cartelisation in LPG cylinder procurement.

The Court emphasised the importance of examining the evidentiary basis for finding concerted action rather than assuming that parallel conduct necessarily establishes a cartel.

Relevance: Particularly useful where alleged customer allocation is inferred from bidding patterns.

14. Customer Allocation and Digital Markets

Customer allocation has acquired new forms in digital markets.

Examples include agreements among competing platforms concerning:

• enterprise accounts;
• app developers;
• advertisers;
• merchants;
• cloud customers;
• online sellers;
• digital subscribers;
• data providers.

A platform may attempt to divide customers through:

• API restrictions;
• account portability restrictions;
• contractual non-solicitation provisions;
• interoperability limitations;
• exclusivity arrangements;
• restrictions on multi-homing.

Where competing platforms agree to allocate customers, the conduct may represent a digital form of traditional market sharing.

15. Customer Allocation Through Non-Solicitation Agreements

A particularly important modern form is the no-poach/no-solicit arrangement.

Example:

Company A will not recruit employees from Company B, while Company B will not recruit employees from Company A.

Although the immediate subject is employees rather than purchasers, the underlying competition concern is similar: competitors agree not to compete for a defined group of counterparties.

Authorities may distinguish employee allocation from traditional customer allocation because employment markets involve a different relevant market and different competitive effects.

16. Customer Allocation and Information Exchange

Information exchange can facilitate customer allocation.

Suppose competitors exchange:

• customer names;
• renewal dates;
• purchasing volumes;
• contract expiry dates;
• customer acquisition plans.

The information may allow competitors to identify which customers they should avoid approaching.

Therefore, an apparently neutral information exchange can become problematic when it facilitates a broader customer-allocation arrangement.

17. Customer Allocation and Exclusive Dealing

Customer allocation should also be distinguished from exclusive dealing.

Exclusive dealing

A supplier and customer agree that the customer will purchase exclusively from that supplier.

Customer allocation

Two or more competing suppliers agree among themselves which customers each will serve.

The first is generally a vertical arrangement.

The second is a horizontal arrangement.

This distinction can significantly affect the legal analysis.

18. Defences and Legitimate Business Explanations

A customer-related restriction may require closer examination where it forms part of a legitimate commercial arrangement, such as:

• genuine joint ventures;
• consortium arrangements;
• temporary collaboration;
• subcontracting;
• capacity-sharing;
• legitimate distribution systems;
• technical integration;
• procurement cooperation.

However, describing an arrangement as a “joint venture” or “consortium” does not automatically immunise an agreement from competition law.

The critical question is whether the arrangement genuinely requires the restriction or merely disguises an agreement among competitors to avoid competing for customers.

19. Compliance Risks for Businesses

Businesses should avoid:

1. agreeing with competitors not to approach specified customers;
2. dividing customers by geography or industry;
3. deciding in advance which competitor will win an account;
4. exchanging sensitive customer information unnecessarily;
5. coordinating bids;
6. agreeing to maintain existing customer territories;
7. using trade associations to divide customer opportunities;
8. creating customer-allocation spreadsheets;
9. instructing sales teams to “respect” competitors' customers pursuant to an agreement;
10. disguising market allocation as a distribution or cooperation arrangement.

20. Compliance Checklist

Before entering a customer-related cooperation arrangement, businesses should ask:

21. Distinction Between Different Arrangements

22. Key Legal Principle

The central competition-law distinction can be expressed simply:

A competitor should ordinarily decide independently which customers it wishes to pursue.

When competitors instead coordinate that decision and allocate customers among themselves, the arrangement can transform independent competitive behaviour into a horizontal restriction.

The strongest concern arises where customer allocation is combined with:

• price fixing;
• bid rigging;
• output restriction;
• territorial allocation;
• sensitive information exchange;
• exclusion of rival suppliers.

23. Conclusion

Customer allocation arrangements constitute an important form of horizontal coordination. The essential competitive harm is that rival firms cease competing independently for particular customers and instead divide those customers among themselves.

The principal legal questions are whether:

1. the parties are competitors;
2. there is an agreement or concerted practice;
3. customers or customer categories have been allocated;
4. the arrangement restricts competition by its nature or effects;
5. the arrangement forms part of a cartel or bid-rigging scheme;
6. a genuine collaboration or other lawful commercial justification exists.

The leading cases—Topco, Sealy, Palmer v. BRG, Andreas, Consten & Grundig, Volkswagen, Wood Pulp, Excel Crop Care, SAIL, and Rajasthan Cylinders—collectively demonstrate the central principle that competition law is concerned not merely with explicit statements such as “you take this customer and we take that customer,” but also with contractual and coordinated mechanisms that effectively partition competitive opportunities.