When most people see the word 'cartel', their mind probably conjures up images of drug lords and violent crime. However, cartel activity can happen in any industry and sometimes it's closer to home than you might think.
One official definition of a cartel is this: 'an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition'.
Although it may seem unlikely, there is certainly scope for cartels to be formed - albeit sometimes unwittingly - in our industry. Most towns have large numbers of estate and letting agents - often small businesses that know each other personally - and so the opportunity for agents to collude or aim to restrict further competition is never far away.
Cartel activity is monitored by Government agency the Competitions & Markets Authority (CMA). The organisation has increased its vigilance on the property industry over the last couple of years, issuing numerous warnings and handing out several high profile fines.
Below, we analyse the CMA's messaging to agents and take a closer look at some of the cases that have affected the property industry...
The CMA sends strong warnings to agents
Upon handing out its latest fine to a group of estate agents, the CMA reiterated why it is taking the issues of cartels and price-fixing so seriously.
The organisation’s Director of Cartel Enforcement, Stephen Blake, had this to say:
“Price-fixing cheats customers and we are committed to tackling it regardless of the size of the businesses involved. We have taken action against estate agents before, and will do so again if firms break the law.”
“Moving home is expensive and this shouldn’t be made worse by estate agents conspiring to deny their customers the best possible deal, by agreeing not to compete on fees.”
The CMA has now fined estate and letting agents over £1 million across two landmark cases concerning price-fixing.
It has also warned agents about their portal choices and collusion. Back in April 2016, the CMA published an open letter to agents, warning agents not to collude with each other when choosing which portals to advertise their available properties on.
And further back in June 2015, another open letter was published addressing the whole property industry and reminding agents, suppliers and trade associations about their responsibilities when it comes to competition law.
Advertising and whistleblowing
To further demonstrate its pursuit of illegal cartel activity, the CMA has launched a campaign called ‘Cracking down on Cartels’.
The campaign has been launched on the back of research which suggests that less than a quarter of businesses know competition law ‘well’.
‘Cracking down on Cartels’ encourages people to report illegal activity and offers a reward of up to £100,000 for whistleblowers, with anonymity guaranteed.
The initiative is the CMA’s first advertising campaign and its content is being promoted across Twitter, LinkedIn and other ‘key websites’.
“Cartels are a form of stealing that cheat ordinary people as well as other businesses by undermining competition, and we are committed to tackling them wherever we find them,” explained Andrea Coscelli, the CMA’s Acting Chief Executive.
“That is why we are launching this campaign – to help people understand what cartel activity looks like and how to report it so we can take action.”
What can we learn from other agents?
As mentioned above, in the last few years the CMA has handed out two substantial sets of fines to agents. These sanctions not only carry the obvious financial implications, but can be damaging to a firm’s reputation. So, what are the details of these cases and where did these agents go wrong?
- Local market price-fixing
In March this year, four estate agents operating in Somerset agreed to pay total fines of almost £400,000 after they were investigated by the CMA.
The firms involved admitted taking part in a price-fixing cartel, which is a breach of competition law.
The agents were guilty of setting a minimum sales commission rate of 1.5%, denying local sellers the opportunity to get the best deal possible.
- Newspaper advertising
Back in 2014, three agents - who were all members of the Three Counties Estate Agents Association - were investigated by the CMA and ordered to pay total fines of over £700,000.
The agencies were sanctioned because it was proven that they had entered into an agreement which prohibited other members of their association from advertising fees or discounts in the local press.
While the above cases do not relate specifically to lettings activity – these scenarios can be easily translated from sales to lettings or cover both. The CMA is clearly being extremely vigilant on the agency sector and so it's important to remind senior members of staff of their obligations when it comes to collusion and cartel activity. Many of the implicated agents may not have known they were acting illegally, but that did not stop them from having to pay hefty fines.
If you are wary of any agreements you have entered into, it is best to speak to a compliance or competition law expert to make sure what you're doing is not illegal. What's more, if you have any suspicions that your competitors are colluding or undertaking cartel activity, you must contact the CMA as soon as possible.