If you rent your home, there's a good chance your landlord uses RealPage to set your monthly payment. The company describes itself as merely helping landlords set the most profitable price. But a series of lawsuits says it's something else: an AI-enabled price-fixing conspiracy.
The classic image of price-fixing involves the executives of rival companies gathering behind closed doors and secretly agreeing to charge the same inflated price for whatever they're selling. This type of collusion is one of the gravest sins you can commit against a free-market economy; the late Justice Antonin Scalia once called price-fixing the "supreme evil" of antitrust law. Agreeing to fix prices is punishable with up to 10 years in prison and a $100 million fine.
But, as the RealPage example suggests, technology may offer a workaround. Instead of getting together with your rivals and agreeing not to compete on price, you can all independently rely on a third party to set your prices for you. Property owners feed RealPage's "property management software" their data, including unit prices and vacancy rates, and the algorithm—which also knows what competitors are charging—spits out a rent recommendation. If enough landlords use it, the result could look the same as a traditional price-fixing cartel: lockstep price increases instead of price competition, no secret handshake or clandestine meeting needed.
Without price competition, businesses lose their incentive to innovate and lower costs, and consumers get stuck with high prices and no alternatives. Algorithmic price-fixing appears to be spreading to more and more industries. And existing laws may not be equipped to stop it.
In 2017, then–Federal Trade Commission Chair Maureen Ohlhausen gave a speech to antitrust lawyers warning about the rise of algorithmic collusion. "Is it okay for a guy named Bob to collect confidential price strategy information from all the participants in a market and then tell everybody how they should price?" she asked. "If it isn't okay for a guy named Bob to do it, then it probably isn't okay for an algorithm to do it either."
[...] According to the lawsuits, RealPage's clients act more like collaborators than competitors. Landlords hand over highly confidential information to RealPage, and many of them recruit their rivals to use the service. "Those kinds of behaviors raise a big red flag," Maurice Stucke, a law professor at the University of Tennessee and a former antitrust attorney at the Department of Justice, told me. When companies are operating in a highly competitive market, he said, they typically go to great lengths to protect any sensitive information that could give their rivals an edge.
The lawsuits also argue that RealPage pressures landlords to comply with its pricing suggestions—something that would make no sense if the company were merely being paid to offer individualized advice. In an interview with ProPublica, Jeffrey Roper, who helped develop one of RealPage's main software tools, acknowledged that one of the greatest threats to a landlord's profits is when nearby properties set prices too low. "If you have idiots undervaluing, it costs the whole system," he said. RealPage thus makes it hard for customers to override its recommendations, according to the lawsuits, allegedly even requiring a written justification and explicit approval from RealPage staff. Former employees have said that failure to comply with the company's recommendations could result in clients being kicked off the service. "This, to me, is the biggest giveaway," Lee Hepner, an antitrust lawyer at the American Economic Liberties Project, an anti-monopoly organization, told me. "Enforced compliance is the hallmark feature of any cartel."
[...] The challenge is this: Under existing antitrust law, showing that companies A and B used algorithm C to raise prices isn't enough; you need to show that there was some kind of agreement between companies A and B, and you need to allege some specific factual basis that the agreement existed before you can formally request evidence of it. This dynamic can place plaintiffs in a catch-22: Plausibly alleging the existence of a price-fixing agreement is hard to do without access to evidence like private emails, internal documents, or the algorithm itself. But they typically can't uncover those kinds of materials until they are given the legal power to request evidence in discovery. "It's like trying to fit a square peg in a round hole," Richard Powers, a former deputy assistant attorney general in the DOJ antitrust division, told me. "It makes the job really hard."
[...] And cases like RealPage and Rainmaker may be the easy ones. In a series of papers, Stucke and his fellow antitrust scholar Ariel Ezrachi have outlined ways in which algorithms could fix prices that would be even more difficult to prevent or prosecute—including situations in which an algorithm learns to fix prices withouts its creators or users intending it to. Something similar could occur even if companies used different third-party algorithms to set prices. They point to a recent study of German gas stations, which found that when one major player adopted a pricing algorithm, its margins didn't budge, but when two major players adopted different pricing algorithms, the margins for both increased by 38 percent. "In situations like these, the algorithms themselves actually learn to collude with each other," Stucke told me. "That could make it possible to fix prices at a scale that we've never seen."
None of the situations Stucke and Ezrachi describe involve an explicit agreement, making them almost impossible to prosecute under existing antitrust laws. Price-fixing, in other words, has entered the algorithmic age, but the laws designed to prevent it have not kept up. Powers said he believes existing antitrust laws cover algorithmic collusion—but he worried that he might be wrong. "That's the thing that kept me up at night," he said about his tenure at the Department of Justice. "The worry that all 100-plus years of case law on price-fixing could be circumvented by technology."
[...] Whether other jurisdictions follow suit remains to be seen. In the meantime, more and more companies are figuring out ways to use algorithms to set prices. If these really do enable de facto price-fixing, and manage to escape legal scrutiny, the result could be a kind of pricing dystopia in which competition to create better products and lower prices would be replaced by coordination to keep prices high and profits flowing. That would mean permanently higher costs for consumers—like an inflation nightmare that never ends. More profound, it would undermine the incentives that keep economies growing and living standards rising. The basic premise of free-market capitalism is that prices are set through open competition, not by a central planner. That goes for algorithmic central planners too.
Related Stories
Several sites have covered the dynamic pricing scandal concerning Tickemaster's sales of tickets to the Manchester based English rock band Oasis' reunion tour. Aside from the problems of the monopoly maintained by Ticketmaster, and aside from the problem of ticket scalping which is encouraged by Ticketmaster's business model, the dynamic pricing has come across as price gouging and a possible breach of consumer law. The Competition and Markets Authority is now launching an investigation into if or how much Ticketmaster engaged in unfair, prohibited commercial practices.
Some fans paid more than £350 for tickets with a face value of less than £150, and had to make a split-second decision whether to complete their purchase, as dynamic pricing caused prices to soar during the booking process.
Lisa Webb, a consumer law expert at Which?, said: "It seems extremely unfair that Oasis fans got up early and battled through queues only to find that ticket prices had more than doubled from the originally advertised price.
"Oasis and Ticketmaster should do the right thing and refund fans who may have been misled into paying over the odds for tickets that would have been half the price just hours earlier."
Where have Soylentils been seeing dynamic pricing lately?
(Score: 4, Interesting) by looorg on Wednesday August 14 2024, @11:34AM (3 children)
Or they could just do what they do here, it's the third year in a row where landlords go out and demand a 15% increase in rent. Then there is some haggling and they eventually settle for about half -- was 5,8% last year. I assume it will be the same this year to. Problem is I'm not getting a 6% increase in my salary every year, or any year. So ask for twice what you want and be happy in the end.
(Score: 5, Interesting) by JoeMerchant on Wednesday August 14 2024, @12:29PM
The only time we signed a lease on a rental home, the market rate was around $1400 per month.
Our particular landlord specialized in renting to people like us, coming into town with good jobs needing a place right away - very likely to be buying a home within 6 months. 4 of her past 5 renters (and the two after us, according to our neighbors) fit that profile.
She also specialized in keeping the deposit. Her method went like this:
Renters move out early, float the home on the market at $1900 per month ($1900 would be getting a country club palace on a big lake, this was a $1400 3-2 in a typical subdivision). Under her "obligation to market the property" it would be listed with agents and advertised for said $1900 per month, until the existing renters' lease runs out, then it would drop - immediately - to market rate: $1400 per month.
Additional tricks: get the new renters to provide a list of "existing conditions" with the home - hire her cousins the "contractors" to fix these things for double to triple market rates, and deduct those charges from the previous renters' deposit. Hire a lawn service to do all kinds of things that don't need doing (incoming renters, such as ourselves, specifically ask not to do, like trimming the hedge that blocks the view of our bedroom and patio from the 2nd story bedroom of the house next door...) also deduct all said landscaping fees from previous renters' deposits. Document all this, let previous renters sue her in court, collect treble damages when they lose (lots of documentation, you see...)
As incoming renters with a new job to attend to and other life demands (toddler, new baby on the way) - our ability to negotiate was very limited. There were basically only a handful of rental homes on the market, all the terms offered were onerous on the renters, so our option was to move into an apartment, climb stairs, put our previous 3/2 home stuff in storage, listen to the neighbors fight at 2am, etc. The real-estate agents who acted as the local market's collusion clearinghouse made sure that none of the offered rentals would budge on price, or terms. No AI required.
When we left, I bought out the remainder of the lease 5 months early - paid $200 to a professional cleaning service (receipt provided) and gave her $400 to cover the electricity bill that I otherwise would have been liable for - so, in effect, she only got to keep just under half of my deposit, and the home went back on the market - immediately at $1400 per month. Mostly, I was done with her bullshit registered letter annoyance games 5 months early, which was priceless.
🌻🌻🌻 [google.com]
(Score: 4, Insightful) by Anonymous Coward on Wednesday August 14 2024, @02:32PM (1 child)
When you aren't allowed to discriminate, costs go up.
When I was a teen back in the 80s, my dad owned 15 rental properties. They were all nice houses out in the country, not apartments.
He was *very* picky about who he would rent to, and never had a problem with people paying or damaging property.
Then someone applied to rent one of his properties, and you could tell by looking at them they would be trouble. They dressed a certain way, talked a certain way, didn't speak well, etc...
My dad said "Your application has been declined"...and the person demanded to know why. My dad said something about "not being a good fit for the property".
Next thing you know, lawsuit for discrimination.
So Dad gets fined around $20k. Gotta make that money up somewhere.
Anyways, a few years later someone applied to rent one of the properties who was nearly identical to the person who filed the lawsuit.
He caved and rented the place.
A year later he gets a call from the Sheriff's Office. They raided the house. It had been turned into a meth lab.
It was so contaminated they condemned the house. It was a 4 bedroom house sitting on 7 acres at the edge of town. No neighbors. Surrounded on 3 sides by a nature preserve and a lake.
It was worth a *lot* of money.
Insurance didn't cover it. The state superfund bulldozed the place to the ground and carted everything away including the top two inches of soil surrounding the place.
There was a huge legal fight because the state wanted to seize the property under the guise of it still being contaminated so they could increase the size of the nature preserve.
He won after spending around $100k in legal fees over several years.
He had to rebuild out of his own pocket. It was several hundred thousand dollars to fix the property and re-build the house.
Since money doesn't magically grow on trees, rent got raised everywhere else to help pay for it.
Oh, and since people who don't actually own property are allowed to vote, they constantly do stupid shit like pass school, police, fire, and EMS levys that increase property taxes on the property they don't own but are renting.
The short answer is that government and shit laws are the main reason rent is so high.
(Score: 2, Insightful) by Anonymous Coward on Wednesday August 14 2024, @05:26PM
lol the best part of the story is where you pointed out that your dad created his own easily-avoidable problem and then later you bitched that his tenants voted against his bullshit.
(Score: 3, Interesting) by acid andy on Wednesday August 14 2024, @01:04PM (6 children)
Potentially worse than simple price fixing would be algorithms offering differently inflated prices to different buyers based on what they determine each buyer is most likely to be willing to pay. I do have my suspicions this may be already happening, though no hard evidence.
Welcome to Edgeways. Words should apply in advance as spaces are highly limite—
(Score: 5, Interesting) by JoeMerchant on Wednesday August 14 2024, @01:52PM
>offering differently inflated prices to different buyers based on what they determine each buyer is most likely to be willing to pay.
Transparency is always the answer. Personally, I am in favor of every "artificial person" corporation, LLC, etc. being required to publicly disclose all prices charged for all goods and services rendered.
I worked for a uniform laundry service that was transitioning their billing system from one computer system to another, using keyboard entry from printouts - so, as a temp employee doing the keyboard entry, I got weeks worth of insight into what the company charged for various services to various clients. It was very much a "whatever the market would bear" type of pricing scheme. The same uniform delivered to the same size and type of business might vary from $2 per use to $12 per use. The whole reason the company paid $11 per hour (each) to a room full of 10-12 temp workers for months and months was because this "individualized pricing" they had negotiated with all their customers needed to be tracked - instead of a flat pricing model that could be published on a single sheet of paper. (The other reason they paid all that money to us temp workers is because their IT department was both incompetent and operating on a shoestring...)
We have the technology for radically increased transparency in business, what we lack is the will to require it.
🌻🌻🌻 [google.com]
(Score: 1, Troll) by Username on Wednesday August 14 2024, @02:33PM (1 child)
I think the worse is social credit companies, that blacklist certain people for wrong think. Like the one that got Farage kicked from all UK banking for advocating credit (and the law.)
Or the one that's working again Musk. I think he's suing the crap out of them ATM.
But all the collusion should be illegal.
(Score: 2) by Username on Wednesday August 14 2024, @02:35PM
Brexit auto correct to credit
(Score: 2) by quietus on Wednesday August 14 2024, @02:46PM (1 child)
Have you tried ordering the same item from an Android phone and an iphone?
(Score: 1, Funny) by Anonymous Coward on Wednesday August 14 2024, @08:59PM
I usually get great prices on Aliexpress when I order from my Windows 7 laptop...
(Score: 3, Interesting) by VLM on Wednesday August 14 2024, @03:44PM
It's a matter of perspective if its better or worse.
In theory, there's strong financial incentive to have infinite merger activity and infinite monopoly activity. It seems financially unavoidable to end up in any scenario other than a cartel of hyper-greedy near-monopolies. Like in health care, food, oil, banking...
However, if at least half the population gets sick of every purchase of an orange being a slot machine pull based upon how much the cartel feels they can get away with F-ing over the individual customer, that will force explosive growth in farmer's markets / CSAs / direct from farm purchases. I think in 2022 I bought the majority of my meat from CSA, although less last year and this year. I should buy another half cow again. I buy the majority of my fruit from local farmers (well, berries anyway). The middlemen are so greedy I can pay twice what the farmer gets from the middlemen and still pay about a quarter of supermarket prices, LOL, at least for blueberries.
Nothing forces market disintermediation like greedy middlemen cartels. In that way their greed is whats preventing them from forming a total monopoly.
Some markets can't be disintermediated and customer anger will push them away from the entire sector. Sure, real estate has been a fetish for boomers for decades, but the younger generations are going to grow up hating the entire sector and once the collapse starts, well, that's it for the real estate bubble ... Possibly, there's no better indicator of cyclical decline of an entire sector, than desperate attempts at the peak of a sector to justify illegal and semi-illegal attempts to keep the bubble bubbling as their only option to generate value. Now would seem a very bad time to get into generational-scale real estate investment, medical-industrial complex such as big pharma, LOL. Note carefully the near begging to demand criminal acts as the only way to keep the bubble going... that is a strong indicator of the health of that sector.
(Score: 3, Informative) by Anonymous Coward on Wednesday August 14 2024, @01:36PM
In the EU, the situation seems pretty clear to my naive eyes. The fact that German petrol stations have gotten away with their shenanigans doesn’t mean it was legal. The wording of the Treaty of Rome is generic enough to cover all such evil intentions :
https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:12002E/TXT [europa.eu]
In particular, the use of AI price advisory services seems to fit particularly well the « concerted practices » case. The « agreement » is not needed, only one of the ways to be on the wrong side of the law.
I admit I didn’t thoroughly read the regulation defining how that article is to be enforced (https://eur-lex.europa.eu/legal-content/EN/ALL/?uri=CELEX:32003R0001 [europa.eu]) but out of an abundance of optimism, I’ll go prepare some popcorn while waiting for the fines to fall.
(Score: 4, Touché) by VLM on Wednesday August 14 2024, @03:09PM
We gave up on regulating hotels and taxis "because its an app" so I assume we'll give up on antitrust laws "because its an app"
(Score: 5, Touché) by Rosco P. Coltrane on Wednesday August 14 2024, @03:18PM (1 child)
There, fixed that for you.
(Score: 5, Insightful) by JoeMerchant on Wednesday August 14 2024, @03:28PM
I'm going to say that AI is a fig leaf for what big data corporations have been doing for 100+ years now.
They gather your data, get together in a back room and strategize how to maximize their profits based on what they know. It's just good (for) business.
Calling it AI because somebody ran an algorithm that nobody understands on a computer doesn't really change the mechanics of the game - except as TFA points out: it allows players to collude "through the algorithm" instead of having to join private societies and do their collusion in closed meetings.
🌻🌻🌻 [google.com]
(Score: 4, Interesting) by JustNiz on Wednesday August 14 2024, @04:13PM (2 children)
The thing is, Landlords have always been able to ask any figure they want. It's just that they don't want their property to sit empty either.
The fact that they can ask more than you personally can pay just means there probably are other potential tenants that can and will pay that.
Even if you already have a place, if you have to rely on a landlords failure to correctly value their property then you're already in trouble.
The thing tenants mostly don't know but have on their side is that it costs Landlords at least 2 months rent (in advertising, admin fees, lost rent etc) when you leave and they have to find another tenant.
Despite their bluster, you can definitely use that to your negotiating advantage when renewing your lease.
(Score: 5, Insightful) by Tork on Wednesday August 14 2024, @05:30PM
This is why big property management companies gobbling up apartment complexes is bad. They can coast until they get the rent they want.
🏳️🌈 Proud Ally 🏳️🌈
(Score: 3, Funny) by JoeMerchant on Wednesday August 14 2024, @08:58PM
>The thing tenants mostly don't know but have on their side is that it costs Landlords at least 2 months rent (in advertising, admin fees, lost rent etc) when you leave and they have to find another tenant.
Despite their bluster, you can definitely use that to your negotiating advantage when renewing your lease.
In college I rented the pool cabana of a medium sized estate. When summer came, I went to Europe for a couple of months - there I successfully negotiated with the landlord to drop 2 months' rent for the 10 weeks I would be away.
Later, when I got a real job and my brand new Miata showed up in the driveway, my rent increased 20% - go figure, no negotiation possible that time.
🌻🌻🌻 [google.com]