By Neil S. Ende
So, you operate a small agency or master agency. Like everyone else in the industry, you are growing increasingly tired of trying to survive — and maybe even make some money — when you’re being squeezed between the major providers and your subagents. And like everyone else in the industry, you belong to several industry groups and trade associations. So you’re thinking that it’s about time to stop complaining to each other as individuals, and instead to address the problems the industry faces, improving economic conditions for everyone.
And it wouldn’t take much. It would be easy, for example, to start such a discussion at an industry event where several speakers talk about the “disastrous market conditions we’re all facing" and how “it’s hard to make a profit at today’s prices" and how “we’ve lost all discipline in our industry." That would start everyone thinking in the right direction, and with only a small amount of luck, it would get everyone headed in the right direction, too.
Sounds like a great idea, and an easy way to start some major improvements, right? The only problem is, it may be illegal. And not just “a little" illegal, more like “everyone goes to jail" illegal.
How can that be? After all, most agents are relatively small. And even if they “agreed" to something, that couldn’t possibly have any real negative effects on consumers in light of all the alternatives consumers have.
Well here’s more bad news: That’s irrelevant. While size (i.e., what you may call “market power") may matter for certain kinds of antitrust analysis, when it comes to price fixing, it does not matter how big you are or how much market share you control.
Hard to believe? Many years ago, the real estate agents in the Maryland suburbs of Washington, D.C., would have agreed with you. In fact they did agree with you. So, one year, at their annual industry gathering, the president of one of the agencies got up and talked to the group about the increasing costs and decreasing margins his agency was facing. He concluded by saying that his agency was considering increasing the commissions it was charging by 1 percentage point. “That’s just us," he went on to say, “We’re going to make our own decisions, and I’m not telling anyone else what to do."
Someone from another agency stood up and said, “We’ve been looking at the same issue at our agency, and we’re also facing shrinking margins from increasing costs, and the fact that we’ve been at the same commission rate for many years now. And we’re having conversations about what to do about it. But we haven’t made any decisions."
Someone from a third agency said, “We’re thinking about it too. No decisions yet."
Several people from several other agencies said nothing at all.
Over the next six months, the average level of commissions charged by the agencies for selling houses moved up about 1 percentage point from what had been the average commission rate.
Several months after that, the Department of Justice indicted most of the agencies and many of the individuals. Everyone was convicted. The agencies paid big fines, and the individuals went to jail.