IIIrvine_IHB
New member
Does anyone on this board with the legal background?
Why is TIC not being challenged for price fixing?
- Thread starter IIIrvine_IHB
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EvaLSeraphim_IHB
New member
Three words: lack of proof.
Until I hung out here, I never even knew that TIC had skin in the game after they sold their lots. The advantage of TIC being a private company is that they are required to disclose little publicly. Unless there is an insider or former insider who could explain how their system works, any price fixing, Cartwright Act, etc. actions are based on nothing more than rumor and innuendo.
Believe me, I've wondered too.
Until I hung out here, I never even knew that TIC had skin in the game after they sold their lots. The advantage of TIC being a private company is that they are required to disclose little publicly. Unless there is an insider or former insider who could explain how their system works, any price fixing, Cartwright Act, etc. actions are based on nothing more than rumor and innuendo.
Believe me, I've wondered too.
bigmoneysalsa_IHB
New member
<p>Hold on a minute. Controling a good share of the market, and holding out for premium prices, is not price fixing. Price fixing involves collusion between entities who would normally be competitors. This clearly does not apply to the relationship between Irvine Company and the developers it partners with.</p>
<p>Really, the Irvine Company has far less power to affect Irvine home prices than you think. Resale homes and competing developments in nearby cities offer plenty of competition.</p>
<p>Really, the Irvine Company has far less power to affect Irvine home prices than you think. Resale homes and competing developments in nearby cities offer plenty of competition.</p>
IIIrvine_IHB
New member
"...the actions are based on nothing more than rumor and innuendo."
I would argue that it is more than rumors and innuendos, but there are binding contract agreements between the parties. Follow the money ...
"Price fixing involves collusion between entities who would normally be competitors. This clearly does not apply to the relationship between Irvine Company and the developers it partners with."
1. Collusion is not a required element, merely an agreement among the collaborators in advance on the price at which TIC has the sole monopoly to determine, <strong>to keep the prices from falling.</strong>
2. TIC's absolute control over commerce in Irvine has the resulting effect of lessen competition so that the consumers have no real choices between the builders. The "net effect" on competition is severely, if not totally, eliminated since all builders are required to submit to TIC's control on pricing thereby denying the consumers the benefits of a competition.
I just don't know if price fixing applies to real estate.
I would argue that it is more than rumors and innuendos, but there are binding contract agreements between the parties. Follow the money ...
"Price fixing involves collusion between entities who would normally be competitors. This clearly does not apply to the relationship between Irvine Company and the developers it partners with."
1. Collusion is not a required element, merely an agreement among the collaborators in advance on the price at which TIC has the sole monopoly to determine, <strong>to keep the prices from falling.</strong>
2. TIC's absolute control over commerce in Irvine has the resulting effect of lessen competition so that the consumers have no real choices between the builders. The "net effect" on competition is severely, if not totally, eliminated since all builders are required to submit to TIC's control on pricing thereby denying the consumers the benefits of a competition.
I just don't know if price fixing applies to real estate.
bigmoneysalsa_IHB
New member
<p>It seems like you are arguing that TIC is engaged in anticompetitive monopoly behavior, not price fixing. This would also be not true. Of all home sales in Orange County last month only one sixth were new home sales. Now the ratio might be a little higher here in Irvine, but even so I'd bet new homes are less than one third the market. How can you have dominant control over a market when your market share is less than half? New homes in Irvine are not a market unto themselves; they are merely new product in the overall housing market for the area. And if your share of it is not dominant this market does not care what you and your associates think the prices should be.</p>
crucialtaunt_IHB
New member
<p>Long post alert!</p>
<p>bigmoneysalsa: <em>"How can you have dominant control over a market when your market share is less than half?"</em></p>
<p>New house <u>sales</u>, by their very nature, "happen" with a higher frequency, and therefore set the pricing trend for the total (used and new house sales) local market at large, because pricing is largely a function of "comps" inthe area. Remember, the pricing trend can be upwards or downwards! So when demand is soft, the new house builders are the first to start discounting prices, then the pre-owned market has to follow the trend because they depend on the comps from the new house sale data.</p>
<p>So, in a relatively new, still growing city (est. 1973?) like Irvine, where there are still large tracts of empty land, rationally speaking, it is <u>very likely</u> that house prices are heavily influenced by prices of new houses. Now, the other question discussed here is regarding "collusion", "price-fixing", monopoly, all terms used in the anti-trust dictionary. I am not a lawyer so I had to do a little bit of reading of the terms on Wikipedia to gain a better understanding of what might apply to the Irvine situation. Again, who leads the way...</p>
<p>bigmoneysalsa: <em>"How can you have dominant control over a market when your market share is less than half?"</em></p>
<p>New house <u>sales</u>, by their very nature, "happen" with a higher frequency, and therefore set the pricing trend for the total (used and new house sales) local market at large, because pricing is largely a function of "comps" inthe area. Remember, the pricing trend can be upwards or downwards! So when demand is soft, the new house builders are the first to start discounting prices, then the pre-owned market has to follow the trend because they depend on the comps from the new house sale data.</p>
<p>So, in a relatively new, still growing city (est. 1973?) like Irvine, where there are still large tracts of empty land, rationally speaking, it is <u>very likely</u> that house prices are heavily influenced by prices of new houses. Now, the other question discussed here is regarding "collusion", "price-fixing", monopoly, all terms used in the anti-trust dictionary. I am not a lawyer so I had to do a little bit of reading of the terms on Wikipedia to gain a better understanding of what might apply to the Irvine situation. Again, who leads the way...</p>
crucialtaunt_IHB
New member
<p>bigmoneysalsa: <em>"Hold on a minute. Controling a good share of the market, and holding out for premium prices, is not price fixing. Price fixing involves collusion between entities who would normally be competitors. This clearly does not apply to the relationship between Irvine Company and the developers it partners with."</em></p>
<p>In all likelyhood, the house builders in Irvine form an <a href="http://en.wikipedia.org/wiki/Oligopolies">oligopoly</a>, i.e. <em>"An <strong>oligopoly</strong> is a </em><em>market form</em><em> in which a </em><em>market</em><em> or </em><em>industry</em><em> is dominated by a small number of sellers (oligopolists). "</em></p>
<p>Furthermore, from Wikipedia, <em>"Because there are few participants in this type of market, each oligopolist is aware of the actions of the others. Oligopolistic markets are characterised by interactivity. The decisions of one firm influence, and are influenced by the decisions of other firms. </em><em>Strategic planning</em><em> by oligopolists always involves taking into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be at the highest risk for </em><em>collusion</em><em>."</em></p>
<p>The market participants we may keep in mind for this point made above here could be:</p>
California Pacific (subsidiary of TIC)
Lennar
John Laing
KB Home
William Lyon
Richmond American
Other smaller players? Taylor Woodrow?
>
<p><em>"As a quantitative description of oligopoly, the <a title="Concentration ratio" href="http://en.wikipedia.org/wiki/Concentration_ratio">four-firm concentration ratio</a> is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. Using this measure, an oligopoly is defined as a market in which the four-firm concentration ratio is above 40%. In the U.S.A, oligopolistic industries include the tobacco, beer, aircraft, motor vehicle, and music recording industries."</em></p>
Do any of set of four of the above firms meet the 40% concentration ratio?
>
<p>Digging deeper:</p>
<p><em>"Firms often </em><a title="Collusion" href="http://en.wikipedia.org/wiki/Collusion"><em>collude</em></a><em> in an attempt to stabilise unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be a real communication between companies) - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as </em><a title="Price leadership" href="http://en.wikipedia.org/wiki/Price_leadership"><em>price leadership</em></a><em>."</em></p>
Who is the price leader, i.e. does TIC exercise <em>de facto</em> price leadership with California Pacific Homes?
>
<p>I think a case can be made, but it will be tough to prosecute. TIC is the landowner, and in a relatively free country, is free to do as it chooses.</p>
<p>And insofar as it is private property, not ceded to the City or the County, TIC as a profit-seeking company, can, and <em>should</em> have the right to invite as many developers to help sell its land holdings in the form of developed properties. Unless the State (or Federal?) anti-trust prosecutors can make a strong case that hitherto private land owned by TIC is now a "public good" and the illegal collusion is somehow impacting the public at large, i.e. exercise some form of "eminent domain"!</p>
<p>I don't think that would do any good for property rights in general. In a sort of oblique reference, many of you may or may not remember <a href="http://www.washingtonpost.com/wp-dyn/content/article/2005/06/23/AR2005062300783_pf.html"><em>Kelo v.</em> <em>City of</em> <em>New London</em></a> which made it to the Supreme Court in 2005 and was ruled in favor of property seizures. I remember being enraged at the ruling since it encroached on an individuals broad property rights guaranteed under the constitution (although that case was regarding state abetted seizure of private land for private development). Maybe, those same property rights that I am speaking in defense of, should apply to TIC.</p>
<p>So bottomline, I think an oligopoly and collusion exists, yet, I am not sure if it should be prosecuted! Yikes, what have I done?</p>
<p>In all likelyhood, the house builders in Irvine form an <a href="http://en.wikipedia.org/wiki/Oligopolies">oligopoly</a>, i.e. <em>"An <strong>oligopoly</strong> is a </em><em>market form</em><em> in which a </em><em>market</em><em> or </em><em>industry</em><em> is dominated by a small number of sellers (oligopolists). "</em></p>
<p>Furthermore, from Wikipedia, <em>"Because there are few participants in this type of market, each oligopolist is aware of the actions of the others. Oligopolistic markets are characterised by interactivity. The decisions of one firm influence, and are influenced by the decisions of other firms. </em><em>Strategic planning</em><em> by oligopolists always involves taking into account the likely responses of the other market participants. This causes oligopolistic markets and industries to be at the highest risk for </em><em>collusion</em><em>."</em></p>
<p>The market participants we may keep in mind for this point made above here could be:</p>
California Pacific (subsidiary of TIC)
Lennar
John Laing
KB Home
William Lyon
Richmond American
Other smaller players? Taylor Woodrow?
>
<p><em>"As a quantitative description of oligopoly, the <a title="Concentration ratio" href="http://en.wikipedia.org/wiki/Concentration_ratio">four-firm concentration ratio</a> is often utilized. This measure expresses the market share of the four largest firms in an industry as a percentage. Using this measure, an oligopoly is defined as a market in which the four-firm concentration ratio is above 40%. In the U.S.A, oligopolistic industries include the tobacco, beer, aircraft, motor vehicle, and music recording industries."</em></p>
Do any of set of four of the above firms meet the 40% concentration ratio?
>
<p>Digging deeper:</p>
<p><em>"Firms often </em><a title="Collusion" href="http://en.wikipedia.org/wiki/Collusion"><em>collude</em></a><em> in an attempt to stabilise unstable markets, so as to reduce the risks inherent in these markets for investment and product development. There are legal restrictions on such collusion in most countries. There does not have to be a formal agreement for collusion to take place (although for the act to be illegal there must be a real communication between companies) - for example, in some industries, there may be an acknowledged market leader which informally sets prices to which other producers respond, known as </em><a title="Price leadership" href="http://en.wikipedia.org/wiki/Price_leadership"><em>price leadership</em></a><em>."</em></p>
Who is the price leader, i.e. does TIC exercise <em>de facto</em> price leadership with California Pacific Homes?
>
<p>I think a case can be made, but it will be tough to prosecute. TIC is the landowner, and in a relatively free country, is free to do as it chooses.</p>
<p>And insofar as it is private property, not ceded to the City or the County, TIC as a profit-seeking company, can, and <em>should</em> have the right to invite as many developers to help sell its land holdings in the form of developed properties. Unless the State (or Federal?) anti-trust prosecutors can make a strong case that hitherto private land owned by TIC is now a "public good" and the illegal collusion is somehow impacting the public at large, i.e. exercise some form of "eminent domain"!</p>
<p>I don't think that would do any good for property rights in general. In a sort of oblique reference, many of you may or may not remember <a href="http://www.washingtonpost.com/wp-dyn/content/article/2005/06/23/AR2005062300783_pf.html"><em>Kelo v.</em> <em>City of</em> <em>New London</em></a> which made it to the Supreme Court in 2005 and was ruled in favor of property seizures. I remember being enraged at the ruling since it encroached on an individuals broad property rights guaranteed under the constitution (although that case was regarding state abetted seizure of private land for private development). Maybe, those same property rights that I am speaking in defense of, should apply to TIC.</p>
<p>So bottomline, I think an oligopoly and collusion exists, yet, I am not sure if it should be prosecuted! Yikes, what have I done?</p>
IrvineRenter_IHB
New member
Interesting discussion.
The Irvine Company does act as like a monopoly trying to control prices in its niche market. It sells land to the other builders because it allows them to sell land at a faster rate than if they tried to build out the entire property itself through California Pacific. The land sales contracts the Irvine Company forces upon these builders gives TIC defacto control over the pricing of the finished product. This makes TIC a working monopoly in the Irvine new house market. TIC does this in order to ensure prices stay high and there is not a price war on its property which would bring down land values. TIC only cares about land values and land sales. Keeping prices high is merely a means to this end.
If you want to draw the oligopoly comparison, it is more relevant to look at The Irvine Company, Rancho Mission Viejo, and the other major land developers in Orange County. They form a true oligopoly because they work independently of each other, but each works to keep the prices high and they do not engage in price wars with each other.
I guess the broader question as to whether the Irvine Company is a monopoly or an oligopoly depends on how you define its market. Notice that I said TIC is a "working monopoly in the Irvine new house market." That probably gives it an ologopoly position in the overall home market in Irvine when you factor in the resale market. It probably does not meet the definition of an oligopoly if you look at the TIC in context of the entire LA County/Orange County/Western Riverside County housing market.
In any case, I don't know if anything can or should be done about the situation. Prices are no higher than the market will bear. I don't see what great benefit would accrue from going after the Irvine Company.
The Irvine Company does act as like a monopoly trying to control prices in its niche market. It sells land to the other builders because it allows them to sell land at a faster rate than if they tried to build out the entire property itself through California Pacific. The land sales contracts the Irvine Company forces upon these builders gives TIC defacto control over the pricing of the finished product. This makes TIC a working monopoly in the Irvine new house market. TIC does this in order to ensure prices stay high and there is not a price war on its property which would bring down land values. TIC only cares about land values and land sales. Keeping prices high is merely a means to this end.
If you want to draw the oligopoly comparison, it is more relevant to look at The Irvine Company, Rancho Mission Viejo, and the other major land developers in Orange County. They form a true oligopoly because they work independently of each other, but each works to keep the prices high and they do not engage in price wars with each other.
I guess the broader question as to whether the Irvine Company is a monopoly or an oligopoly depends on how you define its market. Notice that I said TIC is a "working monopoly in the Irvine new house market." That probably gives it an ologopoly position in the overall home market in Irvine when you factor in the resale market. It probably does not meet the definition of an oligopoly if you look at the TIC in context of the entire LA County/Orange County/Western Riverside County housing market.
In any case, I don't know if anything can or should be done about the situation. Prices are no higher than the market will bear. I don't see what great benefit would accrue from going after the Irvine Company.
kcmkane_IHB
New member
<p>I'm not expert on this, and have done no other research --- besides reading this thread. But my simple mind thinks of it like this:</p>
<p>- TIC does their best to control prices as best they can in their corner of the market (I would expect nothing less from them --- last I checked they were not a non-profit). </p>
<p>- As consumers and citizens of a free country, however, none of us <em>has to </em>live in Irvine. We all have the choice to become fed up with TIC and their prices, and choose to instead spend our new home $$$ in the neighboring communities like Ladera Ranch --- or on resale homes in Irvine. </p>
<p>- If enough of us make the choice to go somewhere other than TIC, I am sure TIC and their partners in crime would adjust prices to become competitive and regain their market share. </p>
<p>So in reality, don't we ultimately control the market? And as such, since I think the prices in Irvine (and everywhere else) are ridiculous right now, I will exercise my right to give none of them my hard earned dollars in 2007. </p>
<p> </p>
<p>- TIC does their best to control prices as best they can in their corner of the market (I would expect nothing less from them --- last I checked they were not a non-profit). </p>
<p>- As consumers and citizens of a free country, however, none of us <em>has to </em>live in Irvine. We all have the choice to become fed up with TIC and their prices, and choose to instead spend our new home $$$ in the neighboring communities like Ladera Ranch --- or on resale homes in Irvine. </p>
<p>- If enough of us make the choice to go somewhere other than TIC, I am sure TIC and their partners in crime would adjust prices to become competitive and regain their market share. </p>
<p>So in reality, don't we ultimately control the market? And as such, since I think the prices in Irvine (and everywhere else) are ridiculous right now, I will exercise my right to give none of them my hard earned dollars in 2007. </p>
<p> </p>
bigmoneysalsa_IHB
New member
<p>IrvineRenter and CK made exactly the point I was trying to (only better). The key is what you define the "market" to be. If you only are talking about <em>new homes in Irvine</em>, then yes TIC has enormous pricing power. But is <em>new homes in Irvine</em> a useful category to be talking about in trying to address IIIrvine's original question? I don't think so. Ford company has enormous pricing power over 2007 mustangs. That doesn't that mean they are violating antitrust laws if they decide to price them higher than other comparable sports cars. It just means that a lot of unsold mustangs will sit on the lot.</p>
crucialtaunt_IHB
New member
<p>IrvineRenter and bigmoneysalsa: You guys are both correct in that it depends on what you define the market to be. My argument about the existence of the oligopoly was specifically in regards to the market for new homes. My initial argument was that prices of new homes set the trend for prices of the overall market because so many are being built/sold in Irvine, that they overwhelm the comps.</p>
<p>(Not to labor this discussion any further, I think I get your point nevertheless, but I am not so sure about the comparison with the Ford mustangs. We are talking about different kinds of widgets... The car market is far more liquid, with more choices at each price point, and future direction of prices, via blue book and residual values known fairly well in advance (down almost certainly, except for collector cars). Also the car maker has other avenues to get rid of cars, such as leasing them to rental fleets, discounting prices heavily to move inventory etc. Also production times are much smaller - a few days vs. several months for home contruction, just to name a few differences.)</p>
<p>(Not to labor this discussion any further, I think I get your point nevertheless, but I am not so sure about the comparison with the Ford mustangs. We are talking about different kinds of widgets... The car market is far more liquid, with more choices at each price point, and future direction of prices, via blue book and residual values known fairly well in advance (down almost certainly, except for collector cars). Also the car maker has other avenues to get rid of cars, such as leasing them to rental fleets, discounting prices heavily to move inventory etc. Also production times are much smaller - a few days vs. several months for home contruction, just to name a few differences.)</p>
bigmoneysalsa_IHB
New member
<p>"new homes set the trend for prices of the overall market because so many are being built/sold in Irvine"</p>
<p>Do you have some data for this? I'm not trying to be sarcastic or anything; I really am curious. For OC as a whole new home sales are about one sixth of the total. Like you, I suspect Irvine is higher but I don't know by how much.</p>
<p>Do you have some data for this? I'm not trying to be sarcastic or anything; I really am curious. For OC as a whole new home sales are about one sixth of the total. Like you, I suspect Irvine is higher but I don't know by how much.</p>
crucialtaunt_IHB
New member
<p>bigmoneysalsa: <em>"For OC as a whole new home sales are about one sixth of the total."</em></p>
<p>For <u>OC overall</u>, I agree with the "about one-sixth" number , because I checked DataQuick charts and saw them fluctuate between 12 - 17% of total home sales. In fact, for 2006, annual numbers posted here, the percentage is about 13%, so even lower than your approximate!</p>
<p>bigmoneysalsa: <em>"Do you have some data for this? I'm not trying to be sarcastic or anything; I really am curious."</em></p>
<p>No offense taken. We are all trying to just get at the "truth" in our own ways .</p>
<p>For <u>OC overall</u>, I agree with the "about one-sixth" number , because I checked DataQuick charts and saw them fluctuate between 12 - 17% of total home sales. In fact, for 2006, annual numbers posted here, the percentage is about 13%, so even lower than your approximate!</p>
<p>bigmoneysalsa: <em>"Do you have some data for this? I'm not trying to be sarcastic or anything; I really am curious."</em></p>
<p>No offense taken. We are all trying to just get at the "truth" in our own ways .</p>
TIC also owns most rental apts in Irvine, and I guess we can argue the same about price fixing on the rental units. But like IrvineRenter points, the price is what the market can bear.
Slightly off-topic, I also notice that in newer mater-planned community (QH, Woodburry, PS) TIC also build rental apartments but only upto 2 bedrooms. So for families that need 3 or more bedroom and want to live in newer master-planned communitues they will have to buy. This could be a tactical move from TIC.
They also keep the price rather high for a 2 bedroom townhome. For example Woodbury Place can cost you $2400 and this is initial teaser rent, next year they can easily bump the rent up by10%. These 2 bedroom Woodbury townhome is similar to Bowen Court/Vientos Plan 2 which is priced at mid $400k I blv.
Slightly off-topic, I also notice that in newer mater-planned community (QH, Woodburry, PS) TIC also build rental apartments but only upto 2 bedrooms. So for families that need 3 or more bedroom and want to live in newer master-planned communitues they will have to buy. This could be a tactical move from TIC.
They also keep the price rather high for a 2 bedroom townhome. For example Woodbury Place can cost you $2400 and this is initial teaser rent, next year they can easily bump the rent up by10%. These 2 bedroom Woodbury townhome is similar to Bowen Court/Vientos Plan 2 which is priced at mid $400k I blv.