Antitrust Laws

Definition of "Antitrust laws"

Written by

Tamisha Lane

Howard Perry And Walston

Across the globe, countries have comprehensive antitrust laws that protect customers and ensure the orderly conduct of businesses. Through antitrust laws, the playing field is balanced for similar businesses operating in the same industry. Because of these laws, monopolies are prevented, and companies can not gain too much control over their competition. In other words, antitrust laws ensure that no company is playing dirty to the detriment of their competitors and customers in order to increase their profit.

What are Antitrust Laws in Real Estate?

Also known as competition laws, antitrust laws in the US are statutes that the U.S. government had developed with the desire to protect consumers from unfair business practices. They ensure that the open-market economy is balanced and that fair competition is implemented to benefit everyone, company, or consumer.

Without these laws, consumers would not have access to competition in the marketplace, competitive prices, or a wide variety of products to choose from. Also, in the absence of these laws, prices can increase, and supply can decrease.

There are several types of questionable business activities that are under the watchful eye of the laws and regulated by antitrust laws. We’ll focus on those related to the real estate industry.

Market Allocation

Through market allocation, we understand the consumer division based on geography or other factors. Whether the brokerage real estate company is national or local, if two such companies split the marketplace in two and decide that each one will keep to their own side, they would violate the antitrust laws. Similarly, brokers who agree to stay away from the other firm’s clients violate the antitrust laws. This is an instance in which the antitrust laws encourage stealing of customers even if poaching isn’t the most polite way to go about it.

Bid Rigging

Whenever a property is sold through an auction, particularly in case of a foreclosure, these auctions can be rigged. The antitrust laws work against these illegal practices, ensuring that the bidders participating in an auction don’t make arrangements to the benefit of another. Bid rigging is a felony punishable with fines and even jail time.  

Bid rigging can occur in three ways: 

1. Bid Suppression - when participants in an auction stop bidding to allow another bidder to win or withdraw their bid so that another can win the auction.
2. Complementary Bidding - when participants submit high bids to influence another bidder to increase their own bid and withdraw their bid if they win.
3. Bid Rotation - when participants take turns submitting the lowest bid in an auction to ensure another bidder wins the auction.

Monopolies

Through monopolies, we understand a company’s dominance of an industry. There are cases when the natural growth of one business and increase of market share can lead to monopolies because of their initiatives and innovation. However, when monopolies result from purchasing market shares through predatory and exclusionary practices, it falls under the illegal practices regulated by the antitrust laws. When two or more brokers refuse to do business with a new brokerage business entering the market, the decision violates antitrust laws and is sanctionable by the government.

Collective Working

While mergers and acquisitions can fall under the scope of antitrust violations because the real estate market works collectively, multiple-listing services provide opportunities for illegal practices. Access policies that discriminate against other brokers or individuals are liable under antitrust laws as they limit access to information from other stakeholders on the market.

The Three Big Antitrust Laws

When the U.S. government created the antitrust legislation, they focused on three main acts of legislation:

The Sherman Antitrust Act

Created to focus mainly on preventing colluding in restraint of trade and monopolizing the market, the consequences of violating the Sherman Antitrust act are fines of up to $1 million for individuals and $100 million for corporations. Additionally, violators can receive up to 10 years of jail time.

The Federal Trade Commission Act

The Federal Trade Commission act focuses mainly on banning unfair competition methods and deceptive acts or practices; these violations also infringe the Sherman Antitrust Act and are judged based on that.

The Clayton Antitrust Act

The Clayton Antitrust Act focuses on practices that are not covered by the Sherman Antitrust Act, like preventing the following: mergers and acquisitions that can lead to monopolies; discriminatory practices, while also allowing private parties to sue for triple damages in case they have been harmed by practices that violate the Sherman and Clayton Acts.

The main reason antitrust laws were created was to increase consumer welfare. Since they were made, they protected competitors and consumers from corporate greed-led market manipulation. 

DISCLAIMER: Considering that laws are subject to change and are not applied identical in every state or region, do reach out to a real estate attorney or legal advisor regarding antitrust laws in your area. These are general information and might not be applicable in every situation.