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
The brokers are planning price fixing.
By agreeing to charge no more than a 3% commission, the local brokers are engaging in price fixing, which is a prohibited practice under antitrust laws. This agreement restricts competition and maintains higher prices than what might occur in a free market.
A) price fixing
This option is correct because the brokers' agreement to set a maximum commission rate directly involves collusion to control pricing in the marketplace. Such practices are illegal as they undermine competitive pricing and can harm consumers by keeping prices artificially high.
B) group boycott
This option is incorrect because a group boycott involves an agreement among competitors not to do business with a particular company or individual. In this case, the brokers are not boycotting ABC Brokerage but rather coordinating their pricing strategy, which is a different issue altogether.
C) tie-in agreements
This option is incorrect as tie-in agreements refer to situations where sellers condition the sale of one product on the purchase of another. The scenario does not describe any such conditions or requirements between the brokers regarding their services.
D) their plan does not violate any law
This option is incorrect because the plan to set a maximum commission rate is indeed a violation of antitrust laws. The agreement among the brokers constitutes an illegal practice that restricts competitive behavior in the marketplace.
Conclusion
The correct answer is price fixing, as the brokers' collusion to limit their commission rates is a clear violation of competitive principles. All other options fail to accurately describe the nature of the agreement or its legal implications, confirming that the brokers' actions are indeed unlawful.