84. A small town has four different real estate brokerages, who are competitors in the local marketplace. A large brokerage (ABC Brokerage) from a neighboring city puts out ads that say 'List your house with ABC – Commission only 4%.' After a local association meeting, the principal brokers of the four brokerage offices in the small town get together. They all decide that something needs to be done about ABC Brokerage, so they agree that none of them will charge over a 3% commission. What prohibited practice are they planning
Answer: A
They are planning price fixing.
The brokers' agreement to charge no more than a 3% commission constitutes price fixing, as they are collaboratively setting a standard commission rate in response to competition from ABC Brokerage.
A) price fixing
This option is correct because price fixing occurs when competitors agree on prices rather than letting the market determine them. In this scenario, the brokers are collectively deciding to limit their commission rates to 3%, which restricts competition and maintains higher prices than could potentially exist if they were to set their rates independently.
B) group boycott
This option is incorrect because a group boycott involves a refusal to do business with a specific company or individual to limit their market access. In this case, the brokers are not boycotting ABC Brokerage but are instead coordinating their commission rates to compete against it.
C) tie-in agreements
This option is incorrect as tie-in agreements refer to situations where a seller requires a buyer to purchase a secondary product as a condition of buying the primary product. The brokers' decision does not involve conditions on product sales, but rather an agreement on pricing structure.
D) their plan does not violate any law
This option is incorrect because the brokers' agreement to fix commission rates is indeed a violation of antitrust laws, as it undermines free competition in the market. Such an agreement is illegal in many jurisdictions because it restricts market dynamics.
Conclusion
The correct answer is price fixing because the brokers are conspiring to set a uniform commission rate, which limits competition and could lead to higher prices for consumers. All other options fail to capture the essence of the brokers' actions, as they either misinterpret the nature of their agreement or suggest that no legal violations are occurring. This coordinated effort against market competition is a clear example of anti-competitive behavior.