Collusion in Brokered Markets

High commissions in the U.S. residential real estate agency market pose a puzzle for economic theory because brokerage is not a concentrated industry. We model brokered markets as a game in which agents post prices for customers and then choose which other agents to work with. We show that there exists an equilibrium in which each agent conditions working with other agents on those agents' posted prices. Prices can therefore be meaningfully higher than the competitive level (for a fixed discount factor), regardless of the number of agents. Thus, brokered markets can remain uncompetitive even with low concentration and easy entry.