Consumers colluding to lower price

williamb

Apropos the current housing difficulties, and persistent rumours that various builders are on the verge of bankruptcy...

Suppose someone set up a web site where potential purchasers could talk about the maximum price they were prepared to pay for apartments in a particular development. Further suppose that the builder is looking for 450,000 euros, and you have 75% of the potential buyers of that development,on your web site, agreeing to offer 50,000 euros, and no more. Suppose the agreement on the web site holds, and the builder goes bust.

Does that developer have anything to go to the high court about ? I know this would be illegal if developers did it... is it illegal if purchasers do it ?

Tom Young

Quick and Dirty answer is no, unless a collusion can be proven on the part of a legal entity creating a detriment to the developers business directly. This does not seem to be the case here. If the prices are being controlled at that stage and affects the true value of the wholesale upstream inputs i.e., the houses at true market value then potentially there may be a case to be taken.

Edit: That collusion could have a reverse effect on the Developer in certain circumstances.

In competition law terms, consumers are afforded high protection. Most property and consumer oriented websites and portals mere give the consumer the choice to select their spending patterns within reason. I have 50K, I want to spend 40K. I select property with a market value of between 25 and 35K. Nothing wrong with that.

In general terms the Competition Authority would deal with Cartel or Collusive behaviour in the Irish market place. They are a small enough agency but effective in my view. Unless pressing the paste button in issuing a warrant ....:) reference to Competition Authority v. Irish Dental Association, whose warrant was to search for data in re. motor cars. A previous warrant had been issued in re. Ford Motors earlier on. Templates! I tell you ....

Additionally the Competition Authority website is www.tca.ie

Competition practices are available in most Dublin based law firms, some are better than others. Those specialising in Regulatory Environments tend to have a more rounded view of such matters.

People are not allowed to give legal advice here but if your a developer you'd be advised to talk to a solicitor or have your in-house counsel do similar.

williamb

Tom Young wrote:

People are not allowed to give legal advice here but if your a developer you'd be advised to talk to a solicitor or have your in-house counsel do similar.

To clarify, this is purely a hypothetical question. It emerges from a dinner party conversation. I have no intention of setting up such a site, but it was discussed and I'm curious about the legalities.

johnnyskeleton

Competition law applies to businesses, not to consumers.

In reality, for an agreement like that to hold, you would have to get agreement of the majority of people who might potentially purchase, and this number increases as the price drops. So the reality of that suggestion is that the people who would have bought for 450k and who try to hold out for 50k will be outbid by new people coming in at 400k etc. You would almost need an agreement between every house purchaser in Ireland, and there will always be a few who break ranks if the price is right.

Tom Young

johnnyskeleton wrote:

Competition law applies to businesses, not to consumers.

Indeed. I included the reference to Competition law owing to its origins and indeed the fact that out of the three strands within competition policy consumers are protected. Actions would be intra legal entity, say the web portal controlling the prices and the developer.

The other two stools or strands are: Regulation of market entry and Pure competition law.

In the US its origins are in the Sherman, Clayton & Robinson Patman Acts and the EU treaty Arts 81 (Hard core infractions), 82 (lesser monopolists and utilities) and 86/87 on state aid.

Article 81(3) EC creates exemptions, if the collusion is for distributional or technological innovation, gives consumers a "fair share" of the benefit and does not include unreasonable restraints (or disproportionate, in ECJ terminology) that risk eliminating competition anywhere. Article 82 EC deals with monopolies, or more precisely firms who have a dominant market share and abuse that position.

I wasn't suggesting that competition law applies to consumers directly. That however is debatable.

Does that developer have anything to go to the high court about ? I know this would be illegal if developers did it... is it illegal if purchasers do it ?

What would be illegal is a cartel environment, but consumers wouldn't control that. Intermediaries would.

Effectively I think there are enough controls in place to abate potential dealing as you suggest. If a relevant market was to be defined and dominance found whether singular or collective, the price test used to qualify and quantify is called a SSNIP test Small but Significant and Non-transitory Increase in Price, its deals with a market that is worth monopolizing.

If anyone ever asks you to get involved in a SSNIP test, might I suggest you run rather quickly to the nearest telephone and call a shrink. I've been involved in about 5 todate and they're a complete mare. Trying to explain it to a judge or indeed the EU Commission has its challenges too.