Price fixing and RealPage was once a laborious and incredibly lengthy exercise. For instance, in the mid-1990s, top executives at large agribusiness firms would have to criss-cross that globe just so they could get together and discuss pricing and distribution of a lousy animal feed additive called lysine.
Today, a process was suddenly required to become much more easier (there is even an app for that)!
On August 23, the U.S. Department of Justice filed a civil antitrust lawsuit that accused RealPage Inc., a Texas company, with orchestrating a nationwide pricing-fixing scheme for apartments across the country. The company is accused of using its software help to the country’s largest landlords in setting rental prices on roughly 30 million apartments across America, apparently even marketing their product by boasting that it can add an increase in rents as high as 3% to 7%.
The case is notable because it underscores the trend of prices being determined by algorithms. It also exposes the dark side of the potential for companies that by all rights should be competing against one another to instead come together and screw consumers, in perfect unison thanks to identical pricing algorithms. It’s a wider effort by antitrust enforcers to take on the newfangled ways corporations are screwing consumers, this time in making one of American life’s most expensive expenses—housing—even more so.
In an interview, Jonathan Kanter, the assistant attorney general for antitrust at Justice Department said “We are seeing these technologies develop across our entire economy. He added that modern technology allows cartels to be established and run much easier than they were in the past.
The next changes to enforcement will an adjustment as well. You have to go back at least 1990s for any price-fixing cartel bust which didn’t involve a communist turned informant. Yet the RealPage complaint leans far more on a fresh cyber analysis cadre created within Justice. So they reverse-engineered the algorithms used by this company, and figured out how exactly does it works.
RealPage collects proprietary data from its clients and the government said it uses that information to set target rental prices for individual apartments. The company then urges these clients to accept its pricing recommendations, reasoning that all will benefit if everyone cooperates.
According to the complaint, one RealPage executive was quoted as saying: “There is greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down. If the aim is to help landlords, then sure — but what benefits society at large thrives on competition. The introduction of competition is good for consumers; rent increases would be slower, stagnant or even decreasing.
RealPage, however, says its software is built to be legal. The company maintains that it just provides input on what rents could be, not a way to collude with others.
With alarming regularity, the tech industry has been able to profit handsomely from convincing both courts and regulators that business done by algorithm is somehow different than traditional business conduct — thereby not subject to the same rules. Uber and Google offer just two prominent examples: Uber insists that an algorithmic taxi service is legally distinct from a traditional one, while Google has prevailed in courtroom after courtroom by arguing that its search results are protected speech because they result not from human editorial decisions but solely the algorithms. DELETE
The RealPage case drives home the fact that algorithms are only decision-making aids and those using them remain responsible for their decisions.
It all boils down to a concept I call the “Guy Named Bob” rule. In 2017, then-Federal Trade Commission Acting-Chairman Maureen Ohlhausen mused that regulators may want to evaluate the use of algorithms simply by swapping out “algorithm” with Bob. “Can someone named Bob gather all the confidential pricing info from every player in a marketplace and then tell everyone else how to price out their stuff? If Bob is not okay doing this, it was probably not nice of an algorithm too.
Algorithms do not make collusion any easier in concentrated industries. Pricing can also be controlled by RealPage given the consolidation of ownership in big apartment complexes and major markets by a couple big national landlords. A lawsuit filed by one of the states, including in Washington D.C. (where 60 percent of units in large apartment buildings and a whopping 90% metro-wide are on RealPage software), places this dispute into clearer perspective.
Traditionally, cartels were difficult to sustain as new companies could come in at a discount under the market valuation. On the other hand, new development in major cities is so complex and difficult—with what I believe are unreasonable expectations from regulators on affordable housing—that RealPage (and their clients) should face little competition.
Key Points:
Price Fixing Hop: In the mid-1995, creating a price fixing cartel took lots of work,, like secret meetings among executives.
How Companies Like RealPage Allegedly Coordinate Price Fixing Among Landlords in the U.S.
DOJ Lawsuit: The Department of Justice filed a civil antitrust lawsuit against RealPage alleging an illegal nationwide price-fixing scheme for apartments.
Use of Algorithm to Price: The case highlights the increasing use of algorithms in pricing which potentially helps firms come together and increase prices at the consumers’ cost.
Impact of Technology: With the technological advancements, cartels have become very easy and efficient to manage whereas they used to be impossible ones.
Enforcement Evolution: While antitrust enforcement of algorithmic pricing strategies used to rely on informants, the DOJ now uses computer analysts.
RealPage’s Argument: RealPage contends that its software is legally permissible and provides landlords with advice on pricing but does not coordinate what they charge.
“Rule of “Guy Named Bob”: If it is not legal for a person to fix prices, an algorithm program should not be allowed to do the same.
Market: With such large ownership of apartment properties being owned by a few national landlords, especially in major cities (New York City absolutely no exception), the influence RealPage has is not insignificant.
Price-fixing is a significant concern as fair competition should be maintained under the American antitrust statute. The following is a list of the key strategies that can help you avoid being accused for price fixing:
1. Learn & Teach About Antitrust Laws
Educate everyone in the organization, especially those responsible for pricing and sales about antitrust laws and what happens when they are broken.
Provide training on legislation and dangers of price-fixing.
2. Create concrete compliance policies
Put In place no price discussion or agreement internal policies and make sure everyone in your organization understands them.
Develop a compliance program that defines what behaviors are okay and which are not, all along the supply chain related to pricing strategies.
3. No talk or communication with your competitor about prices.
Do NOT have conversations with your competitors about setting prices, discounts or anything price related.
And, cut off the conversation and report directly to your legal for illegal behaviour if they talk at all about pricing.
4. Set Prices Independently
Focus on market research, cost analysis and your business objectives to set prices — leave the competitor out of this.
Instead, use transparent and legal price determination methods based on data.
5. Conducting a price practice audit is another best method.
Make sure your pricing strategies and policies are reviewed from time to time to ensure they comply with antitrust laws.
Audit your process for risk or non-compliance in pricing #heetsETweet
6. When in doubt, you should always get legal advice.
If you are not sure whether a particular pricing practice violates the law and thinks it may be price-fixing, seek advice from trade specialists or antitrust counsel.
Continuously seek expert antitrust advice when approving joint venture projects, alliances or transactions affecting pricing.
7. Monitor Industry Practices
Be aware of industry trends and practices but do not blindly mimic competitors in their pricing models which could get you accused, prosecuted or fined for “price-fixing.”
Be mindful of antitrust when participating in trade associations and collective actions.
8. Encourage Whistleblowing
Cultivate an environment in which workers feel safe reporting price-related abnormalities as well.
Establish a confidential whistleblowing system so employees can report perceived offenses.
9. Document Pricing Decisions
Maintain extensive notes on the basis for pricing, i.e., what data was used by whom in making each decision.
Documentation like this can go a long way in proving that pricing decisions were made independently and free from collusion.
10. Thou Shall Not Create Joint Pricing Agreements
Some joint ventures or partnerships that price together can create contractual entanglements that breach the boundaries of lawful conduct.
Make sure any co-marketing initiatives with other businesses have well-documented, legally reviewed guidelines around pricing.
These steps can help a business keep the competition fair and avoid entering into price-fixing arrangements.
