how a gentlemen s agreement works
gentlemen s agreements have been commonly made in international trade and relations as well as in most industries gentlemen s agreements were especially prevalent at the birth of the industrial age and well into the first half of the 1900s as regulation often lagged new business practices such agreements were found to be in use to control prices and limit competition in the steel iron water and tobacco industries among others a gentlemen s agreement is often but not always sealed with a handshake or similar gesture that is socially recognized by both parties to the agreement as well as to any witnesses or outsiders limitations of a gentlemen s agreementat its worst a gentlemen s agreement may be made to engage in anti competitive practices such as price fixing or trade quotas since a gentlemen s agreement is tacit not committed to paper as a legal binding contract it may be used to create and impose rules that are illegal the end result in many cases may be higher costs or lower quality products for consumers worse yet a gentlemen s agreement may be used as a means to promote discriminatory practices such as in an old boy s network gentlemen s agreements because they are informal and often not written down do not have the same legal and regulatory protections in place that a formal contract has and thus are more difficult to enforce the u s government placed a prohibition on gentlemen s agreements in trade and commercial relations between nations in 1890 history and examples of gentlemen s agreementsgentlemen s agreements between industry and the u s government were common in the 1800s and early 1900s 12 this however led some regulators to believe that there was rampant collusion and unfair business dealings the bureau of corporations a predecessor to the federal trade commission ftc was thus formed in 1903 to investigate monopolistic practices 3