Business Blog
Price fixing by algorithm is still price fixing
Landlords and property managers can’t collude on rental pricing. Using new technology to do it doesn’t change that antitrust fundamental. Regardless of the industry you’re in, if your business uses an algorithm to determine prices, a brief filed by the FTC and the Department of Justice offers a helpful guideline for antitrust compliance: your algorithm can’t do anything that would be illegal if done by a real person.
Today, the FTC and Department of Justice took action to fight algorithmic collusion in the residential housing market. The agencies filed a joint legal brief explaining that price fixing through an algorithm is still price fixing. The brief highlights key aspects of competition law important for businesses in every industry: (1) you can’t use an algorithm to evade the law banning price-fixing agreements, and (2) an agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.
The agencies’ work in this space is especially important given rising residential housing rental prices. Rent is up nearly 20% since 2020, with the largest increases concentrated on lower- and middle-tier apartments rented by lower-income consumers. About half of renters now pay more than 30% of their income in rent and utilities, and rising shelter costs were responsible for over two-thirds of January inflation.
Meanwhile, landlords increasingly use algorithms to determine their prices, with landlords reportedly using software like “RENTMaximizer” and similar products to determine rents for tens of millions of apartments across the country. Efforts to fight collusion are even more critical given private equity-backed consolidation among landlords and property management companies. The considerable leverage these firms already have over their renters is only exacerbated by potential algorithmic price collusion. Algorithms that recommend prices to numerous competing landlords threaten to remove renters’ ability to vote with their feet and comparison-shop for the best apartment deal around.
What’s the message for other businesses?
Agreeing to use an algorithm is an agreement. In algorithmic collusion, a pricing algorithm combines competitor data and spits out the suggested “maximized” rent for a unit given local conditions. Such software can allow landlords to collude on pricing by using an algorithm—something the law doesn’t allow IRL. When you replace once-independent pricing decisions with a shared algorithm, expect trouble. Competitors using a shared human agent to fix prices? Illegal. Doing the same thing but with an agreed upon, shared algorithm? Still illegal. It’s also irrelevant that the algorithm maker isn’t a direct competitor if you and your competitors each agree to use their product knowing the others are doing the same in concert.
Price deviations don’t immunize conspirators. Some things in life might require perfection, but price-fixing arrangements aren’t one of them. Just because a software recommends rather than determines a price doesn’t mean it’s legal. Setting initial starting prices or recommending initial starting prices can be illegal, even if conspirators deviate from recommended prices. And even if some of the conspirators cheat by starting with lower prices than those the algorithm recommended, that doesn’t necessarily change things. Being bad at breaking the law isn’t a defense.
The housing industry isn’t alone in using potentially illegal collusive algorithms. The Department of Justice has previously secured a guilty plea related to the use of pricing algorithms to fix prices in online resales, and has an ongoing case against sharing of price-related and other sensitive information among meat processing competitors. Other private cases have been recently brought against hotels and casinos.
Technology is a promise. Used correctly, it can make our lives healthier, safer, and more efficient. But its efficiency can also be used by bad actors to crush competition or bilk consumers in novel ways. No matter the tool law violators use, the FTC and the Department of Justice stand vigilant on the side of consumers and competition.
Hannah Garden-Monheit is Director of the FTC’s Office of Policy Planning and Ken Merber is Deputy Assistant Director of the FTC’s Anticompetitive Practices II Division.
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March 04, 2024
What about gasoline prices? The industry has been using algorithms for many years.
March 04, 2024
Please look into rideshare companies. Although they may not be sharing software it is obvious they share strategies as both use similar tactics. Both companies went to algorithmic fare payments almost at the same time. Riders and drivers are being financially harmed and this agency is doing nothing about it.
March 04, 2024
So where can we nominate deserving Landlords and Property Managers for this distinction?
March 04, 2024
I would suggest this is also going on in the technical trades businesses and car dealerships. The FTC needs more investigators to really crack down on these people who are engaged in price fixing
March 04, 2024
thank you for sharing the information
March 04, 2024
We've been a victim of price fixing since 2010, when we opted to sell our house and go back to apartment living. Every landlord, every property manager has used this software to set or suggest rent prices. They don't even mind telling you that they're fixing prices! These algorithms have turned leasing managers into automatons serving at their pleasure. There is no humanity in leasing offices anymore.
Every day for over a year now I've tracked the advertised rent prices of the complex where we live, and some of the price changes I've seen make absolutely no sense until you realize that they're being set by computers. I've seen rents on one-bedroom units go up $204 overnight, only to be dropped $313 just a couple of days later! I'd be furious if I'd signed a lease near that timeframe!
So thank you very much for speaking about this and bringing it to the public's awareness. It's about time this suspicious, unfair and expensive practice end.
March 04, 2024
Thank you!!
March 04, 2024
Good luck :)
March 11, 2024
Okay? So make it stop!?
March 13, 2024
In reply to Okay? So make it stop!? by Citizen
Yes. When can we expect the FTC to be filing charges against RealPage and the other price fixing apps? And all the landlords using them?
March 15, 2024
I rent an apartment in a newer complex. My rent is set by Yieldstar (by realpage). The office staff say they have zero control over the price set by that algorithm and I have no ability to negotiate rent pricing. All other apartment complexes in the local area use the same software platform. Why is this practice legal (apparently) for renting apartments but illegal for renting houses? This seems to be a blatant price fixing scheme all across the country.
March 25, 2024
Rent in my area has nearly doubled in eight years. I make over $20 an hour and still had to take on a roommate. Something has to give; 70% of Americans work in the service industry, and most service jobs don't pay enough to keep a roof over your head. Anything that curbs the mass corporate buyout of American housing-- denying the working class homeownership just so venture capitalists can get richer off rent money-- is a good thing for our nation.
March 25, 2024
We need as many people who support this as possible to speak up.
March 25, 2024
My apartment complex in Smyrna uses this practice, too. Used to be that I could negotiate with the leasing office for a increase reduction, but for years they've claimed that prices are set by an algorithm that they are powerless to change.
March 25, 2024
Please tackle corporate landlords and foreign investors in residential real estate
March 25, 2024
My apartment management began using Appfolio for all administrative needs a few years ago. Sending emails to tenants, paying rent, submitting maintenance requests, signing leases. Since then our rent has increased numerous times, I’ve observed a noticeable increase in spam mail to the address provided them, and a degrading of overall service from management. I’ve discussed with tenants from other apt Mngmt companies who also use Appfolio in the area. They describe very similar behavior from Mngmt/appfolio. Including rent increases which appear oddly similar to ours.
I’d love to see more enforcement/investigation of this practice when obfuscated through 3rd party services.
March 25, 2024
this is geeat to hear, but when is enforcement action - subpoenaing the books of RENTmaximizer et al's developers, using their customer data to go after landlords? - going to happen?
March 25, 2024
So we can expect action against this by when…? 2035? 2040?
March 25, 2024
Real estate and rental prices are a great place start. Wall Street market makers should receive just as much scrutiny, as they price fix the securities they trade to “a price they deem is reasonable”, despite what the market demand might be. Next, look at Amazon and other online retailers.
March 25, 2024
So how about busting Wall St's hedge funds and short-sellers who collude to manipulate stock prices and short vulnerable companies into the ground, until they're de-listed and cannot get financing any more? Once such companies are de-listed, the short sellers never even have to pay taxes on all the gains they make from forcing the price to fall, since the stock is de-listed and they never actually have to 'close' their short positions. (This is so common there's even a trade name for it, 'cellar-boxing').
Why is high-frequency trading actually necessary? How can a fair market exist when humans cannot trade nearly as quickly as huge supercomputers placed literally across the street from Wall St? Why can hedgefunds and short sellers trade huge blocks of stocks selectively (buy-side, but not sell-side) on 'dark pools' to benefit only themselves?
The SEC isn't doing its job, so the FTC should step up and put a stop to all of this.
March 25, 2024
Now do private equity/hedge funds buying up starter homes, not fixing them up at all, all while inflating prices in the rental market and home buying market. Why are we entering the “you will own nothing and be happy” generation? I’d like to change that.
March 25, 2024
Sounds like it’s legal for a fee. Any punishment that is legal for a fee means the government body responsible for punishment is an enabler and allows such illegal actions to take place, for a cut of the profit.
Wake me when the Millennials, Gen Z, and Gen Alpha actually take over and end corruption and put people behind bars for doing illegal activities that harm people. Domestic terrorism will not be tolerated and all the Mayo will be confiscated.
March 25, 2024
Financial market makers create liquidity for efficient markets, algorithmically setting share prices to where it should be (hidden away in private exchanges) to evade price discovery. Our media firms publish distorted news to avoid any collusion, sorry... confusion amongst the cartel about where a stock is headed. We don't mind being making videos stating this as the fine is inconsequential, and just the cost of doing business. After all, we are essentially a citadel, well protected by various government agencies.
March 25, 2024
Price algorithms and AI should not be helping landlords drive up rent!! End this immediately, it’s wrecking Americans and our ability to save money and move up the social ladder.
March 25, 2024
Rent is out of control. I know several people that are using 2/3 of their pay just to have a roof over their head.
March 25, 2024
Please investigate rent collusion and raises that are increasingly straining and hurting all Americans but especially the poor and middle class.
April 12, 2024
I see Zillow as agent of price fixing of both sale and rental of homes. At all locations, Zillow lists rent estimate as the common payment on a 30-year mortgage 20% down. A landlord is pressured by family and associates then, to not be a fool, asking less; or better, much less. Zillow would enable any person with wealth to end up owning a home paid-for by the less privileged. Such is criminal, happens every day, and is a major driver of inflation. City Housing staffers have an obligation to stand in the way, and do not. This must not be unregulated.
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