🏡 for real (estate)?
🏡 for real (estate)?
competition and digital infrastructure
💡 Consolidation of the digital infrastructure that supports real estate transactions is exacerbating the tension between competition regulators and consumer protection authorities in Canada.
Back in January, Dye and Durham (a public Canadian company) purchased DoProcess. Unity, formerly “The Conveyancer,” (which is a pretty cool name) was one of DoProcess’s core products and this acquisition increased its prices by 400%. The software supports legal professionals working on real estate, corporate, wills and estate law and finds efficiencies for things like title insurance, mortgage instructing, and accounting services.
It wasn’t an acquisition that garnered a lot of attention, probably because it was a boring carve-out of a niche service. But when D&D raised prices on Unity there *was* an outcry from some independent lawyers that had to bear the cost of those fees. However, the outcry wasn’t as strong among the vast majority of users, many of whom simply passed the surcharge onto homebuyers, knowing those clients may be more preoccupied with the hundreds of thousands of dollars they were investing in a house than the $500 charge for Unity’s software.
Consolidation as a Strategy
D&D now provides a key piece of software in the Canadian real estate industry, and the company has been increasingly acquisitive, making 6 acquisitions totalling $860M since going public in 2020. Price increases like this are a key part of their playbook. In fact, they specifically reference “price growth” in their investor day presentation.
In most cases, these increases are being passed onto homebuyers, and in other cases, independent lawyers are eating the fees themselves (through lower margins). It seems that in Canada, DoProcess was the only provider of real estate software in the industry, giving them complete pricing power and possibly control of the data in a way that creates significant switching costs (as referenced below, also from their investor deck AKA hiding in plain sight). Given that it holds 90% of the market in Ontario, this begins to resemble a monopoly. What’s more, since it’s hidden as a small percentage of a large transaction that happens infrequently for the consumer, there may be less price sensitivity.
🤔 In Canada, competition law does not explicitly address excessive pricing.
There’s a bit of regulatory limbo here, though it seems obvious that D&D is blatantly abusing its market power. Which regulator has the jurisdiction to take on this ridiculous price hike?
🤷♀️ The digital infrastructure between a business and its consumers is a regulatory no-man’s land.
The province of Ontario offers “Consumer protection information about homes and renovations,” but there’s nothing about a situation like this. To my mind, there is an opportunity for the province’s Consumer Protection Authority to consider how and when it may intervene on such a matter regarding the digital layer between business and consumer.
At the federal level, it is not clear whether the merger was approved by the Competition Bureau. Though the price was $530M (CAD), which meets part of Canada’s merger review threshold, a notice of a concluded merger review is not posted online.
This demonstrates a peculiar policy gap between the feds (Competition Bureau) and the provinces (Consumer Protection). In Canada, we have decoupled consumer protection from competition, which creates a sort of standstill whereby no single authority “owns” this new problem.
As reported by The Logic, Dye & Durham is being considered by the UK’s competition authority after proposing to acquire TM Group. Perhaps this highlights the deficiency of the Canadian approach as the UK authorities seem to be taking more early action, with consumer interests in mind.
The firm is also trying to go private. Though they reference valuation as the main reason, a more cynical read is that the company would have a lower profile and receive less scrutiny.
🏢 regs
Competition laws do not prevent firms from obtaining and exercising a dominant position: the prospect of enjoying profits and market power is the engine of innovation and growth. What competition law DOES prohibit is the abuse of dominance, which can be hard to distinguish from tough competitive behaviour.
Consumer protection focuses on empowering and educating consumers about their rights and how they can protect themselves. Provincial consumer law promotes an informed marketplace in which competition is subject to the need to compete fairly and without deception.
While we have decoupled consumer protection from competition in Canada, there are natural overlaps. Further, many have called for us to rethink competition policy so that it incorporates more of a consumer welfare standard.
Real estate services are a shockingly monopolized industry. Even title insurance is an oligopoly. There are competition issues in the digital services space that are going unaddressed.
Given the antitrust scrutiny in the UK, it is surprising that not a single acquisition has come under review from Canada’s Competition Bureau. Even if one of these acquisitions WAS reviewed, it is likely that it would be upheld by Canada’s efficiency defence.
💰 riches
Um, when you jack up the price of your product by 400% because you’ve consolidated the market, you get rich and everyone else suffers.
Monopolizing an industry often gives you pricing power, and when you’re a small part of a large transaction and the customer can pass on the fee to someone else, people barely notice.
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Vass Bednar is the Executive Director of McMaster University’s new Master of Public Policy in Digital Society Program.