Cheating is not competing

In recent years the Competition & Markets Authority (CMA) has successfully prosecuted a number of agents for operating cartels in their local areas. Following on from this it appears that the CMA considers that there may be a problem with the estate agency market more generally and it has now launched a campaign about the importance of competition and the unlawfulness of cartel behaviour to bring this to the attention of small businesses.

In the most recent prosecution four agents in Berkshire were found to have broken the law by agreeing to fix and maintain a minimum level of commission fees to be charged upon the sale of a property. The arrangement lasted some 7 years and denied local residents the opportunity to shop around for the best possible rate when selling their properties. The process went so far as to include local enforcement with emails and meetings to bring recalcitrant members back on side. The Agents were fined a total of £605,519.

This follows two previous prosecutions in recent years where 2 other cartels of estate agents were found to have operated together in a local area to fix prices or suppress competition. Fines in these 2 cases were £735,000 and £370,000.

In all these cases, by colluding with each other, these agents prevented fair competition within the market meaning that consumers paid inflated prices. The agreement to work together instead of competing with each other is an unlawful cartel and is a form of cheating because it only benefits the cartel and not the market.

The CMA has launched a campaign aimed at small businesses but clearly with an eye to the estate agency prosecutions. The same restriction will apply to lettings agents and indeed the campaign is targeted at small businesses generally. Estate and lettings agents are extremely vulnerable to anti-competitive practices as they frequently operate in highly localised but fast-moving markets where there is often pressure to negotiate fees. In addition, there are active local and national trade groups which provide meeting spaces for agents at which discussions about pricing can easily cross the line from friendly banter or generalised pricing strategy to more specific and unlawful discussions about how prices might be fixed.

An important distinction needs to be made here. Market research, such as sending out a secret shopper to find out what others are charging and fixing your own prices accordingly is not unlawful. However, direct collusion between 2 or more agents who the public would expect to compete with each other who are in fact setting prices thus reducing competition is a cartel and unlawful.

Conclusion

These prosecutions appear to be on the CMA’s radar so agents need to consider how they might reinforce their internal practices. This should certainly include clear written policies so that there is no doubt that the organisation deplores these practices, training in those policies, regular reinforcement and auditing.

 

Disclaimer

The contents of this blog post is not legal advice and is provided for general information purposes only. If legal advice is needed readers should contact a solicitor. No responsibility for any information contained within this post is accepted and PainSmith solicitors accepts no liability in respect of the contents or for action taken based on this post.

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