US DoJ takes action against algorithmic pricing scheme

The US Department of Justice (DoJ) has filed an action against RealPage Inc., a provider of pricing software to landlords used in setting rents for housing. The action alleges that RealPage’s pricing algorithm both allows landlords to coordinate rental pricing and unlawfully monopolises the market. 

According to the DoJ, landlords agree to share non-public and competitively sensitive information about rental rates with RealPage. Its algorithm then generates rental pricing recommendations based on that information, plus the information of other competing landlords. While landlords can chose not to follow, or to undercut, these recommendations, the software discourages them from doing so, among others by requiring manual entry of an explanation for doing so, which RealPage then vets. As the DoJ puts it in its press release “By feeding sensitive data into a sophisticated algorithm powered by artificial intelligence, RealPage has found a modern way to violate a century-old law through systematic coordination of rental housing prices”. RealPage is alleged to have a market share of around 80%.

In its complaint, the DoJ relies on a number of statements made by RealPage and landlords. These include RealPage describing its products as “driving every possible opportunity to increase price”, a RealPage executive noting that “there is greater good in everybody succeeding versus essentially trying to compete against one another” and a landlord commenting “I always liked this product because your algorithm uses proprietary data from other subscribers to suggest rents and term. That’s classic price fixing”.

Despite much discussion by competition authorities since at least 2017 of algorithms being a potential focus for antitrust enforcement (see here, here and here among others), cases have – to date – been relatively few and far between (see examples, here, here and here). Moreover, issues such as whether algorithms can unlawfully collude with one another (without human intervention) remain essentially unresolved. Instead, cases to date have tended to reinforce longstanding lessons. In that regard, points to note regarding the DOJ case against RealPage include that it involves:

• conscious use by landlords of the same pricing algorithm as their competitors;
• the public sharing of competitively sensitive information prior to final (public) pricing decisions (compare this 2011 OFT case);  and
• incautious statements by RealPage and its users about the nature of their activities.