Group boycotts are when two or more competitors agree to conspire against another competitor by no longer working with them.
Real estate professionals who engage in group boycotts lose millions of dollars and even risk spending time in jail. As a future real estate professional yourself, you’ll need to learn about the ins and outs of group boycotts from trusted experts like us.
In this post, we’ll define group boycotting, review its history, and provide a few examples that will clarify the concept. Let’s get started!
What Is Group Boycotting?
A group boycott is when two or more competitors agree to conspire against a third competitor by no longer working with them. A group boycott increases the market power of the competitors who teamed up and harms the boycotted business.
But what is market power? Market power refers to a company’s ability to control the price of its services. With less competition in the market, real estate brokers can raise their prices to any amount, and consumers have no choice but to pay.
Examples of Group Boycotts in Real Estate
So, what does a group boycott in real estate look like?
One example is if real estate agents Henry and Sally stop doing business with real estate agent Dan, driving him out of the market. Then once there’s less competition, Henry and Sally raise the cost of their services. This would be considered an illegal group boycott and price fixing.
Another example of a group boycott is if a group of real estate dealers agrees not to support a particular advertiser, forcing them to lower their rates.
Why Are Group Boycotts Unethical?
So what’s the problem with eliminating the competition and watching your market power grow? Well, a group boycott in real estate interferes with the free market, which is necessary for keeping housing prices fair and reasonable.
A boycott allows a group of competitors to engage in price fixing, which is when they all agree to set the cost of their services to a specific price. This means that homebuyers and renters will have to pay these prices no matter how high they are, as other competitors have been forced out of the market.
Not only is this type of business practice immoral, but it violates federal antitrust laws.
What Are Antitrust Laws?
Antitrust laws are federal and state government laws regulating business corporations’ conduct and organization. These laws aim to promote fair competition and ensure a free market for consumers.
The three federal antitrust laws every real estate professional should know are:
- The Sherman Antitrust Act
- The Clayton Act
- The Federal Trade Commission Act
So if all these laws were made to fight monopolistic business practices, what’s the difference between them? Let’s take a closer look at all three!
The Sherman Act was the first federal law passed in 1890 to prohibit contracts, conspiracies, or agreements that restrain trade. While this act helped combat price fixing schemes like group boycotts, it was limited in its power due to Supreme Court rulings.
The Clayton Act, passed in 1914, is the updated and improved version of the Sherman Act. This law explicitly lists monopolistic business practices that compromise a fair market, group boycotting being one. While the Sherman Act left a lot open to interpretation, the Clayton Act specifically clarifies which business behaviors are considered illegal.
The Federal Trade Commission (FTC) Act helps enforce the Clayton Act to ensure fair housing and competition. The FTC is responsible for penalizing realtors who participate in an illegal boycott or other price fixing schemes.
Penalties for Breaking Antitrust Law
But what are the penalties for breaking federal anti-monopoly laws? A real estate agent engaging in group boycott conduct could be fined up to $1 million and face up to 10 years in prison. If the entire real estate firm violates antitrust law, the company could be responsible for paying as much as $100 million.
What to Know for the Real Estate Exam
Being an expert on group boycotting will help you pass your exam and succeed as a future real estate agent. As long as you’re up to date on antitrust laws and violations, you should have nothing to worry about on the big day.
It’s important to know before the test that group boycotts are illegal, and real estate professionals should promote a free market instead of engaging in anticompetitive tactics.
Do you want to learn more about real estate law and ensure you ace the exam? Quiz yourself on other vital terms using our Real Estate Flashcards!