Zillow Trulia Combination
How the FTC decided to allow the Zillow/Trulia Merger?
The following are the comments of the Federal Trade Commission in setting out their view of the Zillow/Trulia combination. This is interesting reading for all industry participants. We note that REAL Trends (along with many others) filed an expert report on this matter, which laid out industry fundamentals as to how brokers and agents advertise and promote their businesses.
Statement of Commissioner Ohlhausen, Commissioner Wright, and Commissioner McSweeny Concerning Zillow Inc./Trulia Inc.
February 19, 2015
The Commission considered whether the particular sets of products and features offered by Zillow, Trulia, and other real estate portals constitute a relevant product market first to all real estate agents and second to certain “high performing” agents that achieve the highest return on investment (ROI) from advertising on real estate portals. The Commission uncovered some qualitative evidence consistent with such market definitions, including the fact that the documentary evidence demonstrated that the parties closely tracked one another in terms of consumer traffic, site features, and pricing. However, the balance of evidence reviewed does not suggest that a hypothetical monopolist of real estate portals could profitably impose a price increase on agent advertising.
Staff also attempted to assess whether the merger would lead to anticompetitive effects. Specifically, staff investigated whether it would be profitable for the combined firm to impose a price increase either on real estate agents generally or on higher performing agents. The evidence was inconclusive. First, there is evidence that a high volume of agents leave Zillow and Trulia on a regular basis, suggesting that alternative advertising sources may constrain their pricing. Second, there is no reliable evidence as to the magnitude and proportion of high performing agents that exist in any particular zip code. Third, there is no evidence that the parties have the ability to price discriminate and thereby target the high performing agents with a post-transaction price increase.
Staff rigorously examined whether quantitative analysis supported the conclusion that a merged Zillow-Trulia would be able profitably to raise the price. First, staff found that real estate portals represent only a small portion of agents’ overall spend on advertising and that there was no evidence that real estate portals offered a higher ROI compared to other forms of advertising to a sufficiently high percentage of agents. If agents spent a high percentage of advertising dollars on real estate portals or if real estate portals offered a higher ROI than other forms of advertising, then the merged firm could conceivably raise the price post-merger. Second, despite significant effort, staff was unable to develop quantitative evidence showing that a significant portion of Zillow’s customers would turn to Trulia in the face of a price increase or vice versa. Finally, data analysis did not show a robust relationship between Zillow’s pricing to advertisers and Trulia’s presence in a particular geographic market.
Staff also investigated whether the merger would reduce competition on the consumer-facing side of the platforms, i.e., whether the merger would substantially lessen competition for consumers interested in researching home buying or selling online. Staff’s investigation concluded that the combined entity will continue to have strong incentives to develop new features in order to grow its consumer audience and thereby increase its advertising revenue. Moreover, we note that the combined firm will still face significant competition for consumer traffic from the remaining portals like Realtor.com, online brokerage services such as Redfin, and other consumer-facing online real estate products.
Conclusion
Based upon the weight of the evidence reviewed over the course of staff’s thorough investigation, the Commission has decided to close the investigation. We emphasize that this decision is the result of a comprehensive examination of all the qualitative, and quantitative evidence staff was able to develop during its investigation.
Original article published by Real Trends.