(This is Part 4 in a four-part series. I started with some definitions to get us on the same page; we then looked at NAR policy on the issue (for those MLSs that are bound by it); I provided some of the arguments for and against making services ‘core’; here, I’ll touch on the legal dimension.
When an MLS makes a service a ‘core’ service, there is at least some risk it can face antitrust challenges claiming the MLS is engaged in an unlawful ‘tying’ arrangement. Under the Federal Sherman Antitrust Act and related statutes, unlawful tying occurs where:
- A seller of a product or service has ‘market power’ in the provision of that service in a ‘relevant market.’ This is called the ‘tying product.’
- The seller requires purchasers of the tying product to buy another product or service as a condition of purchasing the tying product. This is the ‘tied product.’
- The result of removing the buyers’ choice with regard to the purchase of the tied product ‘harms competition’ in the market for the tied product.
- The harm to competition outweighs the pro-competitive effects of the tying arrangement.
The laws governing tying and related conduct are complicated. This post can really only scratch the surface. There are a few points I’d like to make immediately.
- The use of apostrophes around terms like ‘tying,’ ‘market power,’ and ‘relevant market’ is meant to point up that these terms have special meanings in the law, meanings that may not be the same as the common meanings of the same words. I don’t recommend running about making shoot-from-the-hip antitrust analyses based on the outline here unless you understand what these terms mean in the legal context.
- We traditionally think of MLSs as monopolists within their markets, which by definition would mean they have ‘market power.’ But the analysis required to determine whether that is a legal fact is complicated. Don’t assume that your MLS has market power, but recognize that others may make that assumption.
- In the MLS context, the basic access to MLS – what NAR calls ‘participation’ – would probably be the tying product. If MLS conditions participation in MLS on the purchase of something more than the basic level of service, that ‘something more’ would be the tied product.
- Bundling services and tying the purchase of one product to another is a very common practice in business. In the vast majority of circumstances, it is perfectly legal. Don’t assume that an MLS tying the purchase of a core service to participation in the MLS is breaking the law.
- The harm the antitrust law is designed to prevent is a harm to competition, not harm to a particular competitor. Companies engage in conduct all the time that harms their competitors – that’s what competition is about. See the brief discussion below about themes of antitrust law to understand what a harm to competition looks like.
- The law recognizes that tying arrangements can have pro-competitive effects. See the brief discussion below about themes of antitrust law to understand what a pro-competitive effect looks like.
The upshot of all this is that an MLS board considering whether to adopt a core service should consider both the pro-competitive and anti-competitive effects of making the service part of the core. Usually, legal counsel will advise you to consider the impact of your conduct based on the objectives of the antitrust laws. Stated very loosely and informally, the antitrust laws are organized around the following six themes:
- Lowering prices
- Increasing quality
- Increasing output
- Curbing power
- Preserving freedom
- Promoting efficiency
(My thanks to Prof. Brad Clary at the University of Minnesota Law School for this simple formulation of the themes of antitrust enforcement.) Note that many of these themes fit in with the arguments for and against core services I discussed last post. Making a service core might serve some of these themes and not others. The question will usually be one of magnitude in each case. There is no simple formula.
This series of posts provides a framework for thinking about the core vs. optional question, but every service in every MLS is different. In general, you should feel more comfortable with a service being core if it’s integral to MLS than if it’s only tangential: a help desk and training for the MLS system are better as a core service than a dry-cleaning pick-up and drop-off service. Smaller financial magnitude usually raises smaller concerns: an increase in core service fees of $3 per agent per year is less distressing than one of $3,000 per year. But the outcomes cannot be predicted based on any formula.
My sense is that NAR’s policy on what is ‘core,’ ‘basic,’ and ‘optional’ was really intended to address potential antitrust issues. I don’t think it’s much help, unfortunately. MLS boards in the midst of these kinds of decisions will have to exercise their judgment, but I hope this series will help frame up the discussion.
As always, your comments are welcome. But please don’t ask me in a comment whether a given instance of a service being core is an antitrust violation. For me to do that analysis takes a whole lot of information, some time, and plenty of attorney fees 😉
My friend Matt Cohen has also suggested that I reiterate a point I made at the beginning of the first of these posts: “If after reasonable research the MLS believes that a service aligns with MLS’s strategic objectives and will provide real value to MLS’s subscribers, the MLS may decide that it should offer the service.” All the analysis I’ve proposed in the last three posts should be necessary only after the MLS has concluded a service is near to the MLS’s strategic objectives. If the service is not strategically related to your MLS’s purpose, you shouldn’t be offering it at all.