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Five States Sue Dominant Internet Search Sites For Restricting Competition And Allocating Customers For Real Estate Listings
New York joined four other states and filed suit in the Eastern District of Virginia against Zillow and Redfin, two of the nation’s largest and most dominant players in the online rental marketplace. The coalition, which includes Virginia, Connecticut, Arizona and Washington State, accused Zillow and Redfin of unlawfully collaborating to remove competition from the marketplace with a $100 million payment from Zillow to Redfin to exit the business of apartment and home internet listings.
Under the plan, Redfin agreed to stop selling multifamily advertising, to terminate its existing multifamily advertising contracts, and to transition those customers to Zillow. Redfin, going forward, would serve as one of several “syndicators” hosting a copy of Zillow’s listings.
The market for residential internet listings has been consolidating for years through acquisitions. Zillow acquired Trulia, HotPads, Out East, and StreetEasy. Redfin acquired Rentpath, Rent.com and ApartmentGuide.com. Zillow syndicates its rental listings to Realtor.com.
According to the court filing, the “agreement is nothing more than an end run around competition that insulates Zillow from head-to-head competition on the merits with Redfin for customers advertising multifamily buildings (that is, buildings with 25 or more units).”
The states argue that Zillow and Redfin’s unlawful agreement eliminates competition in violation of Section 1 of the Sherman Act. Considered as an acquisition, it is unlawful under Section 7 of the Clayton Act.
The Sherman Act prohibits agreements between separate entities that unreasonably restrict competition, such as price-fixing, bid-rigging, or allocating customers. The Clayton Act prohibits mergers and acquisitions where the effect “may be substantially to lessen competition, or to tend to create a monopoly” in any line of commerce.
The plaintiff states are seeking a permanent injunction against Zillow and Redfin.
The market for online apartment rental advertising is highly concentrated, with just three companies – Zillow, Redfin, and CoStar (owner of Apartments.com) – accounting for 85 percent of all market revenue. For years, these companies competed fiercely to sell advertising to property management companies and landlords and attract prospective renters. This competition incentivized Redfin and Zillow to invest in improving their user experiences to attract more advertisers and renters.
According to the court filing, rentals make up over 30 percent of all housing in the United States. Internet search listings (ILSs) are one of the most important tools for renters to search for available rentals. Landlords and property management companies pay ILSs to advertise their vacant units to renters, and ILSs enable prospective renters to search for listings that meet their needs. All companies operate nationally.
Zillow, Redfin (whose flagship rentals site is Rent.com), and CoStar (whose flagship rentals site is Apartments.com) competed fiercely to sell advertising to property managers looking to rent their available units. With the removal of one of the dominant players and competition in the market, plaintiffs argue that prices to advertisers will rise and the quality of offerings will diminish, harming landlords, tenants, and property managers.
“Millions of New Yorkers rely on online apartment listings to find an affordable and safe place to live,” said Attorney General Letitia James. “Zillow’s attempt to shut down its competition could drive up costs for advertisers and leave renters with fewer options when searching for a new apartment. New Yorkers are already struggling with an unaffordable housing market, and I will fight to stop this illegal deal that could make it even harder to find a home.”
The coalition is seeking a court ruling declaring that Zillow and Redfin’s agreements violate federal antitrust laws and an injunction that would prohibit Zillow and Redfin from engaging in their unlawful conduct and restore competition. The lawsuit also proposes divestiture of assets or reconstruction of businesses to restore competition.
