Collusion in Brokered Markets

77 Pages Posted: 10 Sep 2019

See all articles by John William Hatfield

John William Hatfield

University of Texas at Austin

Scott Duke Kominers

Harvard University

Richard Lowery

University of Texas-Austin

Date Written: September 7, 2019


The U.S. residential real estate agency market presents a puzzle for economic theory: commissions on real estate transactions have remained constant and high for decades even though agent entry is frequent and agents’ costs of providing service are low. We model the real estate agency market, and other brokered markets, via repeated extensive form games; in our game, brokers first post prices for customers and then choose which agents on the other side of the market to work with. We show that prices appreciably higher than the competitive prices can be sustained (for a fixed discount factor) regardless of the number of brokers; this is done through strategies that condition willingness to transact with each broker on that broker’s initial posted prices. Our results can thus rationalize why brokered markets exhibit pricing high above marginal cost despite fierce competition for customers; moreover, our model can help explain why agents and platforms who have tried to reduce commissions have had trouble entering the market.

Keywords: Real estate, Repeated games, Collusion, Antitrust, Brokered markets

JEL Classification: D43, L13, L4, R39

Suggested Citation

Hatfield, John William and Kominers, Scott Duke and Lowery, Richard, Collusion in Brokered Markets (September 7, 2019). Harvard Business School Entrepreneurial Management Working Paper No. 20-023 (2019). Available at SSRN:

John William Hatfield

University of Texas at Austin ( email )

Austin, TX 78712
United States

Scott Duke Kominers (Contact Author)

Harvard University ( email )

Rock Center
Harvard Business School
Boston, MA 02163
United States


Richard Lowery

University of Texas-Austin ( email )

Red McCombs School of Business
Austin, TX 78712
United States

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