The Sixth Circuit has upheld a Federal Trade Commission ruling that a Michigan MLS service acted anticompetitively in adopting a rule that discount real estate listings would not (1) be transmitted to other public sites that provided access to full commission listings; and (2) listed within the MLS’s default search function. The court upheld the FTC’s findings that the MLS constituted an agreement among realtors and that it possessed market power in the area because of its large market share and the difficulty of competitive entry given that network effects make a MLS more valuable as the number of listings increases.
The FTC held that the exclusions should be deemed illegal under either a quick look analysis or under a full rule of reason review. The Sixth Circuit refused to consider a quick look analysis, commenting that while the exclusion of certain brokers or all discount listings from an MLS had been held to violate that antitrust laws, the sort of rules challenged in this case had not.
Under the full rule of reason, however, the court held that the challenged rules had anticompetitive effect. The rules restrained the availability of discount listings to the public either by prohibiting access to certain public sites altogether or by increasing the realtors costs of reaching those sites. In addition, when discount listings are observed by the public, they tend to create downward pressure on real estate commissions generally. Hindering access to discount listings was thus anticompetitive because it blunted this form of price competiiton. The FTC also presented economic analysis that tended to show that these rules had actually reduced the number of discount listings within the defendant’s geographic market.
The court also agreed with the FTC that the defendents’ proferred procompetitive justifications were insufficient to outweigh those effects. The defendants argued that discount brokers were free riding on MLS services. But discount brokers were required to pay the same dues and fees as non-discount brokers for access to the MLS. The defendants argued that free riding nonetheless occurred because discount brokers often did not always work with a cooperating broker, thus reducing the number of fee paying brokers to the MLS and creating a bidding advantage by buyers who did not have to compensate a second broker in the transaction. The court rejected these arguments because (1) discount brokers paid cooperative brokers in the 80% of transactions in which they were used, and (2) full commission brokers did not always pay cooperative brokers when buyers came directly to the full commission broker. To be sure, full commission brokers still collected the entire commission when a cooperating broker was not used, creating a bidding advantage for discount listings. But the court explained, this bidding advantage was pro-competitive in that it created downward pressure on commissions.
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