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Cartels: Closer to home than you might think

Wednesday 18 October 2017

Earlier this year, the Competition and Markets Authority fined a group of estate agents in Somerset for being part of a price-fixing cartel. Now, CMA Project Director Juliette Enser, flags the warning signs agents should be watching out for.

If every time you hear the word ‘cartel’ you think of Colombia or Mexico, then you’re overlooking an issue that could be much closer to home.

This year, five estate agents operating in the Burnham-on-Sea area were fined over £370,000 for price-fixing.

Recent details released by the CMA reveal how the agents originally got together to have a “chat about fees”. This turned into an agreement to fix a minimum level of commission fees in order to, as certain agents put it, “drive the fee level up” and make “as much profit as possible”. This ultimately meant that their clients, local home-owners, were misled into thinking they’d secured a genuinely competitive deal when selling their properties when in fact, it was nothing of the sort.

Keeping up with competitors can be tough, but it’s against the law to enter into cosy deals with your rivals that manipulate conditions so that you avoid or reduce competition. Simply put, a ‘cartel’ is where two or more rival businesses agree that they won’t compete against each other – whether this be on price, which customers they target or other commercial choices, such as when or how they intend to sell their product or service (e.g. advertising practices).

Cartels are a serious breach of competition law and are akin to stealing – they force up prices and reduce choice for customers. This is why there are serious repercussions for businesses and individuals involved in one. The CMA is cracking down on cartels across the UK and in recent years has stepped up the number of cases it has taken, including those involving small and medium sized businesses.

What agents need to know about competition law

Agents should heed the warnings from the Somerset cartel. Going along to a meeting to have a seemingly innocent chat can be all that it takes for you to become part of a cartel. It’s important to note that you don’t need to make a ‘formal’ agreement, in writing or verbally, for it to break the law. Just sharing sensitive information about what you or your business plans to do means others can predict your behaviour and adjust their own accordingly. The starting point under competition law is that all businesses must decide their commercial strategy, especially their pricing, independently. Therefore, both those who share such information, and those who receive it, could be breaking the law.

If you’re in conversation with other, competing agents, then these topics of discussion should quickly ring alarm bells:

  • Prices, rates, fees: any discussions about agreeing a common approach to pricing, or that agents won’t go below a minimum rate or fee.
  • Advertising: agreeing with competitors to restrict how or where fees are advertised, or making joint decisions about which property portals to list on.
  • Customers or territories: where there’s an agreement to share or restrict who can sell to who, whether this is based on geography, type of service or type of customer being sold to.
  • Future plans: especially when these concern an individual agent’s pricing intentions, business plans or marketing strategies.
  • Other commercially sensitive information: information that is not in the public domain, such as a business’ costs, profit margins, sales volumes, production capacities etc.

Coming clean

The Somerset cartel is the second case the CMA has taken in the estate agency sector in recent years. The first concerned a group of agents who agreed to restrict the advertising of fees in a local paper. We believe the sector still lacks understanding about competition law and agents need to do more to make sure they’re staying within the law. The CMA is committed to tackling anti-competitive arrangements in the estate agency sector, and our determination to root out cartels won’t go away, so it’s in agents’ best interests to train their staff on the red flags when in contact with rival agents.

For those who are concerned that they are involved in something that may be illegal, the good news is that there is a way to reduce your exposure. A business that is the first to come clean to the CMA and co-operate could avoid any fines or sanctions for the individuals involved (this was the case for a sixth agent involved in the Somerset cartel). But remember…it’s only the first to come forward that can benefit from immunity, so if you think you’re involved, be sure to report it to the CMA as soon as possible.

If you have information about a cartel, or any other form of anti-competitive behaviour, you can report it through the stop cartels page on the government website