Is this algorithm driving your rent higher?

Today, algorithms rule everything around us. They serve us entertaining, or at least addictive, content on social media. They try to suss out which emails in our overstuffed inboxes might be most important, and which ones are spam. They act as matchmakers for our love lives. Increasingly, though, algorithms have also been deployed by companies, from Amazon to Uber to Wendy’s, to figure out optimal — often higher — prices that can shift automatically based on a firehose of fine-grained data. Including, apparently, your rent. Now, a software company called RealPage is being sued by the Department of Justice for using an algorithm that suggests rent prices to corporate landlords. The DOJ argues that its algorithm has driven rents higher, and constitutes an illegal information sharing scheme. That is, competitors (the landlords) who would otherwise be acting independently, have exchanged “nonpublic, competitively sensitive data” to the detriment of renters who don’t have access to such knowledge. A 2022 ProPublica investigation quoted Andrew Bowen, then a RealPage executive, admitting that the software had probably driven up rental prices. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually,” he said. In the DOJ’s complaint, one unnamed landlord is quoted praising a RealPage product as “classic price fixing” saying, “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term.” The complaint claims that RealPage has data on over 16 million units; the National Multifamily Housing Council estimates that there are around 23 million apartment units in the US. Vox spoke to Christopher L. Sagers, a law professor at Cleveland State University, on why pricing algorithms are under scrutiny now — and how likely it is for the DOJ to win this case. The conversation has been lightly edited for clarity. What exactly is RealPage? The company is a service provider that serves landlords. We’re basically talking very big landlords — corporate landlords that own many properties, generally speaking. The RealPage service is very expensive, so it’s for bigger entities, more or less, and they’re very sophisticated. Whether they use RealPage or not, they would be sophisticated data crunchers who are into using management expertise to maximize the money they can make. [RealPage] is really a software service provided to landlords, a management service that’s tech-based, and the business end of that service is: RealPage collects a very large amount of confidential, sensitive data that’s very useful to landlords in figuring out what their competition is doing, and therefore choosing how to set their own behavior to maximize their own profits. The government alleges that there are 16 million individual rental units at stake here — in other words, RealPage is collecting lease terms, rent prices, occupancy rates, et cetera, for 16 million different apartment units. The data is very disaggregated — it’s very granular, very precise and detailed. Then [it] takes all that data, crunches it. RealPage, increasingly, is an artificial intelligence provider. It is now crunching [the data] with artificial intelligence; they’re presumably going to be getting more and more sophisticated about it, assuming that the government doesn’t force them to stop doing what they’re doing. Landlords use this software, but they’re not the ones named in this suit, right? That’s correct. Is there a good case to be made that RealPage committed antitrust violations? Yes. I’ll just lay my cards on the table: I think the government’s case is very strong, and it’s unlikely that RealPage gets out of this without some kind of legal liability. What is the part of what RealPage and its software does that the DOJ is saying violates antitrust law? I think the relatively simple answer is, they do a few things with this data that cause them to be doing more than just providing information or helping landlords make decisions. Most importantly, they are using confidential data not available to renters. They’re only available to one side of the market. They are then using that data to, as they would say, make mere recommendations. In other words, they’re making forward-looking future predictions of what the best price will be from the landlord’s perspective — meaning the most profitable. It’s very clear that, in the abstract, a couple of things that RealPage could be said to be doing are, in fact, legal. [But] according to the government’s allegations, RealPage is doing more than just those things that are legal. There is, first of all, this argument that RealPage is doing stuff that screws up the rental market — it increases rent prices for consumers. There’s the separate argument, though, that RealPage has monopolized the market for this software. So it doesn’t sound like RealPage was just letting its software do its thing — the complaint mentions how it had “pricing advisors” who would basically escalate the matter if a landlord rejected their recommendation. Does that constitute an agreement of some kind? Oh, yes. It feels like you read complaints all the time in which you’re like, “Wow, what were they thinking? Why did they think they were going to get away with this?” You’re selling a service in which you’re going to have an employee go complain to somebody’s competitors and say, “Hey, get your prices up.” Is it illegal just to have [a price advisor]? Is it illegal to sell a service in which you’re going to go nag people’s competitors to get their prices up? I think the short answer very well may be yes, that in and of itself is independently illegal. Here’s why I think that’s so significant. You asked, “Are they suing the landlords too?” The answer is no — but there are pending private lawsuits, and I think if the government wins this case, which I think they will, there are going to be big lawsuits against the landlords. These private cases that are coming, I think, will be conspiracy cases. They’ll be what we call “hub and spoke conspiracy” theories. For a long time, antitrust has recognized that people might want to get their prices up with their horizontal competitors, but they find it difficult to make agreements with them — or they’re afraid of doing something illegal, so they don’t explicitly agree. But then some intermediary will come along who’s willing to do the work of getting the cartel together and enforcing the cartel agreements — that person is called the hub. Their relationship with each one of the competitors is like a spoke. Hub and spoke conspiracies, when they involve somebody just fixing explicit prices, are what we call per se illegal: they’re automatically illegal if it’s proven, there’s no defense. [RealPage] is selling the thing that makes it so hard to get a price-fixing conspiracy together — it’s hard to get people to agree, and then enforce the agreement once it’s made. What do you think RealPage’s main defense will be? Their main defense is going to be that they are simply helping landlords do something that landlords could have done themselves, and if the landlords did it, it would all have been legal. That’s a general point they will make. A closely related point is, they’re going to say this isn’t price fixing; this is just sharing of information. And as everybody knows who’s taken freshman economics, information is good for markets, right? Competitive markets have to have good information or they don’t work well. So we’re really just doing this to have a vibrant, competitive marketplace. Do you find that compelling? What’s the first rebuttal to that? No, everything about it is a lie. The first rebuttal to it is this: they’re not doing something that any landlord could do independently. For one thing, one landlord can’t get 16 million data points that are updated every night and crunch it through a big data algorithm. If a trade association of landlords did that on their own, without a third-party intermediary, it would very likely be illegal for the same reasons that this thing seems like it’s illegal. So the scale of it is a big thing here. Yes, the scale of it is a big thing. It isn’t just that it would be hard to get that much data, and it would be expensive to crunch it — there would also be a lot of difficulty in coordinating the agreement. Two competitors would share information if they really were comfortable that they could trust the other one to use it for evil. If I can trust my competitor to use this to get our prices up and keep them up, that’s great, but the truth is, they’re actually quite suspicious of each other. There’s a reason this information is confidential, because they ordinarily don’t want their competitors to have it. Then point number two, that this is actually good for the economy — that’s not plausible because they’re not sharing it. They’re not going to make a public database where renters can go see who’s charging the lowest price. Based on what we know, based on the DOJ complaint and other reporting, do you think it’s likely that RealPage helped drive up rents? I think it’s very likely. This isn’t just a big conspiracy in that it involves a lot of units; they also have very substantial market penetration. Among landlords of a certain size, a very large percentage of them are using not just a product like this; they’re using RealPage. The complaint contains a bunch of evidence that the landlords know who else in their market is using RealPage, and they call each other and ask. The reason that’s so significant is, if you know that your three competitors are all using the same software that you use for any competitive purposes, then you know there’s no real risk to you in raising your prices, right? So the idea that this isn’t raising prices in real markets seems very unlikely to me. If RealPage said that their algorithm doesn’t just recommend higher prices, but also lower ones sometimes, would that change the situation? It might if they could prove it. It would still be a case that, I think, could go to a jury on liability — even if there were substantial evidence that sometimes they’re making prices go down — because there’s just a lot of anti-competitive evidence here. They have the price nudge officials, there’s evidence that all the users of it know when their competitors are using it. All of those things suggest this is anti-competitive. If the DOJ wins this case, what does that change for digital pricing tools in general? Because there are a lot of those around now. Amazon famously uses algorithms in how it prices. One thing we’re going to learn, I think, once this case starts chugging along, is just how common businesses like RealPage are. Using confidential information and big data technology to calculate the highest possible price — who knows, I’m not a macro economist, I don’t know what causes inflation — but I have reason to believe that this particular technology has had a huge impact on consumer prices throughout the economy. If RealPage is found to have violated the law, it will at least have repercussions throughout the tech sector. This is a big tech product category, right? It’s something antitrust watchers have been thinking about for a long time. When can an algorithm itself be illegal, and when is an algorithm effectively price fixing?