The Sherman Antitrust Act prohibits two primary activities: (1) combinations/conspiracies/contracts in restraint of trade and (2) monopolization, attempted monopolization, or conspiracy to combine/monopolize. The act was passed in the 1890s as a response to enormous combinations of businesses into singular obstructive entities such as Standard Oil, Carnegie Steel Company, Vanderbilt rail lines, and the American Sugar Refining Company. While the economists of the time thought that the market would right itself and “a man of superior skill and intelligence” could rise to the top by providing superior services and products, there were certain practices that were the opposite of competitive and unfairly destroyed competition itself. Think, for example, of a railroad baron who owns every line in and out of your city. He can set the price at anything he wishes, and until it is so expensive as to justify a competitor laying a new rail line into your town, you have no choice but to eat the cost or avoid the service. In the time since the 1890s, antitrust laws have expanded somewhat to clarify several scenarios that are all considered illegal:
Scenario: Price Fixing
At a local association meeting, several business owners sit down at a table together and start discussing how much they each charge clients for their services. All the business owners agree that the market looks like it will improve soon, and there will be a number of buyers soon. They agree that all buyer agents will charge the same amount, “to avoid a race to the bottom where everyone is charging the lowest possible commission just to get clients.” [This is strictly an antitrust violation]
Scenario: Dividing Markets
A small town has several subdivisions being developed in it. There are three brokerages in the town. The owners of the three brokerages agree that each one will take two of the new subdivisions apiece and handle all sales and purchases in that subdivision. They agree that they will refer all business in one of the assigned subdivisions to the respective brokerage when able. [This is strictly an antitrust violation.]
Scenario: Bid Rigging
A dozen real estate investors conspired together to rig bids at online auctions for foreclosure properties. One investor would be determined as the “winner” of the bid ahead of time, and if the investors saw no competing bids by other parties, they would refuse to bid against the chosen investor. A new “winner” would then be chosen for the next property. [This is strictly an antitrust violation because it suppresses competition.
Scenario: Group Boycott
When pressed to provide a discount to real estate agents, a home inspection company refused. In response, all the real estate agents in the region agreed that they would never refer clients to that inspector nor would they advise the client to make use of that inspection service. [This is strictly an antitrust violation.]
Scenario: Conspiracy to Monopolize
Several competitors note that a new company is entering the market and is very likely to accept commission at substantially lower rates than the rest of the brokerages in the area. The competitor brokerages all agree that they will not refer business to the new brokerage, they will pressure clients away from that brokerage, and discourage any sellers from selling to that brokerage’s buyers when able. The hope of the competitor brokerages is to push the newcomer out of the market by making it impossible to conduct profitable business. [This is strictly an antitrust violation.
Because most brokers operate as independent contractors, they are technically competitors with every other broker. E.g., if multiple brokers in your office are splitting up geographic regions where they work or operate and producing territories, or if multiple brokers in your office agree together to set their prices at a set number, there may be an antitrust problem at play. Conversations at meetings of local associations, conversations between independent contractor brokers, all must be filtered through the antitrust lens. Avoid making disparaging remarks about competitors, avoid contracts to share future business, shut down conversations about commission rates, pricing structures, listing policies, and marketing practices as soon as possible.
Antitrust issues arise when businesses fail to act as competitors and begin to collude or conspire. Brokers and brokerages are encouraged to take a healthy amount of caution in any interaction with a competitor. Documenting your actions and closely following established policies will act as a defensive tool against antitrust claims. Text messages, oral conversations, and written records are all discoverable at trial either through demands for production or through interrogatory demands for information. Documentation is nevertheless one of your best shields if an antitrust lawsuit occurs, assuming you can prove that you took no steps that were anticompetitive or attempted to limit or restrict competition.
Under the Sherman Act, individuals may face up to $1 million for a violation of the antitrust laws, while a company may face up to $100 million in penalties. Even larger penalties are possible [such as violations of the Clayton Act for discriminatory prices or services between merchants, which can result in 3x the actual damages].