YieldStar software helps landlords set prices for apartments across the U.S: https://www.propublica.org/article/yieldstar-rent-increase-r...
"To arrive at a recommended rent, the software deploys an algorithm — a set of mathematical rules — to analyze a trove of data RealPage gathers from clients, including private information on what nearby competitors charge.
For tenants, the system upends the practice of negotiating with apartment building staff. RealPage discourages bargaining with renters and has even recommended that landlords in some cases accept a lower occupancy rate in order to raise rents and make more money.
One of the algorithm’s developers told ProPublica that leasing agents had “too much empathy” compared to computer generated pricing."
Say I own a house, and want to rent it out. I'm naturally going to go onto rental search sites and look at what similar houses in the area are renting for, and probably ask something pretty close to that.
I would assume this is not illegal because it's using public information and not colluding with any competitors on price.
But subscribing to a service that uses an algorithm that does basically the same thing is (might be) illegal? Does it cross the line when I explicitly agree with competitors that we'll all use the same algorithm? Or if we're all just independently using the popular pricing service could that become illegal? Or if the service agreement requires me to not rent for less than their algorithm calculates?
What makes it collusion is the fact that others are using it as well, so the answer to your questions is yes. My understanding is that there's nothing wrong with building your own software that crawls public information and computes a price for you - the key thing is that it has to be your own, you can't distribute that software to others.
ate you sure it is that? after all, we all independently use the Kelley Blue book value of a car before we sell.
I think there has to be some intentional and provable link that you and I agreed (colluded) to use a particular value and set a floor below which we wouldn't sell.
That book doesn't price individual cars, only types and the price of the actual car is open to interpretation and usually negotiation.
The key distinction lies in how YieldStar approaches setting rental prices compared to other systems. YieldStar not only recommends rental prices by analyzing the entire inventory it oversees but also incorporates a strategy that effectively eliminates the possibility of rent negotiation with potential tenants. This approach mirrors the dynamics of the prisoner’s dilemma, a situation in game theory where individuals may not cooperate, even if it’s in their best interest to do so. However, YieldStar transcends the Nash equilibrium—the point at which no participant can benefit by changing strategies if the others remain unchanged—by stripping tenants of any bargaining power. This ensures that the rent pricing strategy is firmly controlled, without the usual back-and-forth negotiation process.
This is a strange claim. How is it that software can eliminate the possibility of rent negotiation? A tenant can negotiate, or try to. How does software eliminate the possibility that this will succeed?
It's the scope and breadth of deployment and the algorithm/business pressures.
This is the key to why it's price fixing. Everyone playing ball and means that the raising rent rates increases everyone's take home even if a few operate with lower occupancy.
The software calculates rent rates that make sure occupancy isn't too low to keep everyone in line. It removes bargaining with the promise that "if you play ball, you'll be rich".
Tenants can negotiate prices just like you can theoretically haggle with amazon.
Of course they would discourage them from deviating from Realpage's recommendation. Why are you paying for a software that recommends the most profitable rent if you aren't going to follow it? Realpage doesn't want property managers to complain that the software isn't working when they're ignoring the software's recommendations.
I have yet to see any evidence that there are any actual consequences of ignoring the recommendations. I'm assuming that Realpage will always accept payment for their services. This suggests that price fixing is unlikely. In the case of a cartel, members are incentivized to sell more than their quota allows, and you need active enforcement to maintain compliance. See the history of OPEC.
It doesn't matter if there are consequences for not following the illegal price fixing scheme (the recommendation algorithm). The fact that they are creating a price fixing scheme in the first place is illegal.
It's the same thing as if I were to call for a meeting of all landlords in my area to discuss rents. Anyone who owns property in the area is invited. At the meeting, I would propose that we all keep rents above 1000$ per room. People would argue and finally there'd be some broad agreement that 900-1100$ dollars per room is a better idea. We don't sign anything and don't imply any repercussions for those who ignore it. Then, 90% of those present would undercut the agreed numbers and offer their rooms for 800$. The end result is that rooms in the area go for 750-900$, so we utterly failed.
What everyone present at that meeting did, even those who undercut the agreed prices, is illegal price fixing. Competitors are simply not allowed to discuss and agree on prices in any way.
If we replace the meeting with a third party offering a recommendation algorithm that everyone independently follows, knowing that others do the same, nothing materially changes. The algorithm need not be binding, and need not be adopted fully, for this to be illegal to do.
I find the pernicious belief that prices could be fixed in the market itself more dangerous than the dumbest price fixing scheme of all time. Let it play out, so we can all remember that price fixing doesnt work, and we might actually see some good come from this story.
Price fixing absolutely works for the parties fixing the price, assuming they have a dominant enough position, at least for some significant time. Look at OPEC - do you seriously believe they would be richer if they competed instead of agreeing on prices/supply?
Monopolies can extract massive wealth from a market, they perfectly optimize profit as long as they are not exceedingly incompetent. Price fixing is just a less organized monopoly.
The problem is that they do this at the cost of all other market participants. But markets can't correct for powerful enough monopolies or cartels. Only outside intervention (riots, government intervention, disruption of the whole sector) can dissolve a monopoly. There is no example in history of a monopoly losing its position in a market without this, since they can always just buy out incumbent competitors.
Why would you compare landlords to OPEC? One organization has the backing of several militaries, including ours, defending their market position by threat of war. If you try to sidestep them you could end up like iraq.
Price fixing in the market doesnt work, because rival landlords cant call the government to airstrike their competitors when they get undercut.
As long as demand exists for the product, cartel members make more money than regular market actors. Defectors can make even more money, but that behavior is going to either be irrelevant (if the defector is too small to Mather), or it will be punished - not by armies, but by other coercive measures. Bribing to return, denying access to other services, bad mouthing, even vandalism or illegal violence. The advantage of the cartel is too large to be allowed to dissolve.
And again, we don't have to guess. Cartels need to be broken up from the outside, they just don't dissolve naturally. This is basic economics, and a well understood weakness of markets. The idea that monopolies and cartels are too weak to resist in a market is not born out by either economic theory nor history.
These two are completely contradictory statements. "Regular market actors" are the same as "defectors." Fracking companies, for example would not be able to exist without OPEC driving up the price of oil because it would be too expensive.
Buyers are also market actors. Also, suppliers who haven't been part of the cartel don't have access to their pricing strategy, and so can't profit as much. Defectors know exactly for some time, and can use that information to beat the market and the cartel in the short term.
iraq invasion has nothing to do with opec. And no opec country has made military moves to enforce the cartel.
And in fact, a lot of opec countries tries to skirt the quotas for personal gain!
Consequences involve being kicked off the service with no refund for the (significant) fees.
Where does it say that? If it's something on the contract, you'd think that the FTC would open with that rather than vaguely imply this this happening.
The haggling part is not that relevant to whether this is price fixing or not.
If RealPage had the effect that all advertised rents in some area were 1000$ but 90% of renters actually negotiated that down to 800$, it would still be price fixing.
Conversely, if landlords in some area all independently decide not to budge from advertised prices and as a result occupancy rates are 10%, that would not be illegal price fixing. Most markets for consumers don't allow any kind of price negotiation, and yet they are not guilty of price fixing.
The key problem is that RealPage facilitates and even encourages explicit collusion between competitors, by showing the same non-public price recommendations to competing lamdlords. Whether that's successful or not and whether they try to make it contractually binding or not is ultimately irrelevant. As the FTC says, unsuccessfully trying to do price fixing is still illegal price fixing.
This sounds like denying the existence of price fixing altogether. Sure, buyers can try to negotiate against a price fixing scheme but it won't work. The price is fixed.
The software isn't really doing anything. It's simply the means of communication by which the prices are fixed amongst the suppliers.
The software literally includes the algorithm that says "this week, you will set the rate for this apartment at $X" based on its data. And if you want to deviate from that, without being kicked off, and losing your substantial fee payment, you will do that rate (and they will check), or you can "request an override" from RealPage, that they may allow or deny at their discretion (and RP agents are formally trained that override approvals may not exceed 5% of requests).
Even if they didn't kick you off, they would still be engaging in price fixing. They would be worse at actually changing prices with their scheme, but badly executed, ineffective price fixing is still illegal.
Can you link to info on that feature of the software?
Because the software has set the price and the landlords are using the software's price exclusively. That is why it's price fixing.
to me, it's not enough to show that the same algorithm or software is deciding the price.
It has to be that there's some threat of punishment from the cartel against those who would lower their price from the agreed one. For example, the explicit agreement by the landlord to keep the price at the algorithmicaly calculated one, even so far as to leave vacancy (where as there wouldn't have been a vacancy if the price was lowered).
There is. I forget the number, but the landlords are only allowed to disagree with the software (and give lower rent) only ~10% or so of the time. Otherwise they will be kicked off of the price fixing platform.
It might not remove the possibility of negotiation. If it reduces the likelihood of negotiation, the impact is similar.
The only way you can productively refuse negotiation is by knowing the price is fixed (or you have the only supply), otherwise others will take your business.
If it's widely believed that other landlords use the same pricing system as you, then that's exactly how landlords can refuse to negotiate.
What’s missing here is that landlords agree to use the algorithm or leave the unit empty. It’s part of the TOS. So when many marker participants do this, it’s colluding.
Wow, that's brazen if true. I don't know why anybody is even talking about algorithms. That's a contract to fix prices.
It also implies that all of the landlords using it are idiots. Not only is price fixing illegal, joining the cartel is optional and costs you money for no personal advantage because you'd have to leave your units vacant instead of immediately renting them out at the higher price induced by the "selfless" idiots in the cartel.
It's an interesting area because the line might be fuzzy. It's not reasonable to expect every landlord to become a data analyst or statistician!
So naturally there's a market for a product that helps landlords make data-driven pricing decisions. I'm sure the big landlords know exactly what they're doing, but I suspect that the smaller landlords don't even realize they are participating in a price-fixing cartel.
As an interesting point of comparison, consider that the Zillow "zestimate" is also an algorithmic price recommendation, shared by all market participants. What's the difference there? Is it that buyers and sellers can both use the same algorithm freely?
I want to make very clear that I think price-fixing is bad and that I believe extremely high real estate prices are at the root of a large and growing amount of misery in Western economies and societies. But I'm also cautious of pursuing thoughtless regulation that hurts small businesses, to the advantage of the big businesses that are causing all the problems in the first place.
And it’s not reasonable for every business to succeed. Good businesses get good at being a business and learn skills necessary to succeed. I had a corporate landlord where the leasing agents would go on tours of neighboring buildings in their spare time to build comps. You don’t need a price fixing algorithm or a pay-rolled data analyst.
I think Americans have a soft spot for landlords because it’s a common business for the middle class to use to move up in the world. Which is nice, but most Americans also have stories of parasitic landlords that left them in terribly unmaintained homes with big rent increases. Regulation will absolutely hurt middle-class landlords but will increase the average sophistication of the industry.
Serious question:
Would it be illegal to hire a human "price consultant" who was very popular among your landlord friends? Does it matter if the price consultant only serves 5% of the landlords in an area? What if they serve 20%? 50%? Where does the line get drawn between "seeking advice from an expert" and "engaging in price-fixing"?
I wouldn't be surprised if that was tried at some point in the past, so there might already be legal precedent for the non-algorithmic variant of this.
Sophistication is a tool used deliberately and maliciously by large incumbents to suppress competition and to crush smaller firms. And I'm not convinced that middle-class landlords who own a handful of units are the big bad guy we should be going after here. I can only hope that the FTC agrees and is willing to focus their attention to where it will actually help people.
The answer is most likely that it would be illegal, yes, at least if your friends are offering properties in the same area. Even discussing pricing decisions with your friends is likely illegal.
Imagine it like this: Coca Cola and Pepsi executives are not going to meet for brunch and casually start discussing what margins they think are reasonable and how they set pricing in different markets and how low they are willing to go with their price. These are some of the most closely guarded secrets of a company. Decision makers who are aware of these aren't even easily allowed to leave one company and join the other, because of the risks of leaking this information. And if they do discuss this things, they would easily be seen as guilty of collusion to fix prices.
The fact that two landlords who happen to be friends are not the CEOs of multi-billion dollar companies doesn't fundamentally change the law. You are not allowed to discuss pricing decisions with your competitors. If you want to collobrate, you need to incorporate and pool your resources into a common enterprise.
And you can hire a price consultant, but that price consultant can't be working for other landlords in the same area. You could hire different consultants from the same firm, but the firm would have to be very careful to ensure that the consultants don't discuss their clients with each other in any way.
This seems like a weird argument.
For some companies their pricing is super secret because it's often negotiated and they don't want Customer A to know that Customer B is getting a bigger discount, and if a competitor knew Customer A was overpaying they'd send them an offer.
But for others the price is just the price. Nobody is going to Walmart to haggle. All of Walmart's competitors know exactly what Walmart's customers are paying because it's written right there on the sign. So how could it be illegal to tell them?
That's not what I mean by pricing decisions. You of course know how much Walmart asks for tomatoes. What you don't know, and is a closely guarded secret, is how Walmart arrived at that price. Is the current price close to their minimum possible, and would they remove tomatoes from the shelves rather than drop this price if the demand wasn't high enough? Are they expecting to increase it or decrease it in the next six months?
And this information is important, because if Whole Foods knew it, they could either (a) try to undercut Walmart to steal their customers, but also could (b) safely increase their price knowing that Walmart plans to do the same, and so not fear losing tomato customers to Walmart.
In contrast, landlords working with RealPage know that at least a large percentage of other landlords follow the exact same pricing strategy, and thus be secure that, if they also refuse to lower prices as the algorithm is recommending, they won't lose tenants to other landlords. Of course, some of them might chose option (a), undercutting all the others, but that's not a real problem in a cartel with so many small members (one cheating member won't significantly affect prices).
So, it's not illegal to say "you know, Walmart charges 2$ for a tomato". But it is illegal to say "you know, I'm in talks with Walmart to convince them to charge 2.5$ per tomato starting tomorrow".
Why not? It's what they did just fine for thousands of years. What fundamentally changed in the last 20 years that makes it impossible for landlords to determine their own price?
Sounds like they’re determining their own price with the technology that’s available.
They aren't, they're outsourcing pricing to a 3rd party knowing that the same 3rd party is doing everyone else's pricing decisions as well.
Specialization, how much time out of my day do I have to worry about the price, if I am dealing with the city trying to get the water fixed, or repaving the driveway, or handling customer complaints? It can be more efficient to pay a modest sum to arrive at the right result, or, more profitable to actively watch the market and adjust pricing, but that costs time/money, so itd better be worth it.
It’s not fuzzy. When a group of people get together to determine a common price for goods, that’s collusion… price fixing. They are literally selling price fixing as a service openly in public.
Yes indeed setting prices is difficult. If you use a service to do it for you, it should be quite illegal, and arguably already is.
Also the “big” businesses clearly outsource this too, having lived in many large apartment complexes where it was obvious a third party algorithm was doing it.
The service itself is legal, but you have the difficult task of not using one client's data when working with a different client.
I don't think it's legal at all. If you're making official pricing recommendations, you're essentially trying to convince competing businesses to agree on price fixing, by definition. It doesn't really matter how you arrive at that recommended price.
The only way this could work is if you give individualized pricing recommendations based solely on public information + the information of the specific landlord, and if your marketing and contractual agreements and so on make it very clear that different landlords will see completely unrelated prices.
Otherwise, even agreeing on the same pricing formula is an illegal form of price fixing (say, if everyone agrees to sell at public average price + 10%, dropping down to public average price + 5% if unoccupied for one month), per the FTC briefs.
Exactly. If it were just a model, you wouldn't need to ask the cartel to authorize a different price. A model supplier doesn't really care if you use it or not, just that you buy it. But landlords (generally larger owners or operators of large multi-family projects) are paying high fees to the software provider previously because they think it gives them plausible deniability about the cartel behavior.
Analyst or not, the issue is knowing who is willing to underprice you. You can't know that unless you have insider information, in this case provided by a shared database. Scraping public listings doesn't give you that.
My understanding is that further than just using software, the software is optimizing to increase maximum profits for the industry by causing a cartel block of people who won't lower prices.
Any individual can go out there and build a model for the rent price, the issue comes in when that model is able to coordinate everyone to keep the prices high and discourage competition/undercutting.
Except, setting higher prices doesnt discouage competition, it encourages it. It makes it far more profitable to undercut anyone foolish enough to buy into this strategy.
Yep, especially with housing. You just build more homes quickly, right across the street from the overpriced ones, and rent them for cheaper.
Missing sarcasm tag on building homes quickly.
Also on right across from the overpriced ones.
Should have been obvious...
There is property for sale in probably every corner of the world, you dont need to build anything.
This is laughable. Every major metro area in the US is in the midst of a crisis of lack of housing supply.
Oops. I've seen worse free-market capitalist opinions held earnestly on HN, so it's hard to tell...
"just" is doing a lot of work there. If the cartel model is profitable, then those taking part have the incentive and resources to buy up property in the areas that they operate in themselves.
At least where I live, there are landlords who operate reasonably (reasonable rents, with safe and maintained properties, that respond quickly to issues), but there's so much demand relative to supply that it doesn't really affect the ones who are just trying to extract maximum profit.
Please ignore this fool, they are clearly a dogmatic libertarian type, not someone who thinks in complexity. He even cited Econ 101 as a source lol.
As long as there are financial speculators, price bubbles will happen. A massive recession can clear out speculators and burst price bubbles, whom will have in the meantime, fleeced the public for billions, as will as made many be homeless.
In commodities markets, the CFTC has different rules about what speculators can do vs real market participants (real producers and consumers). There are very few rules/laws that disincentivize real estate speculation and many forces that incentivize it. These algorithms are additional tools that help speculators maximize profit.
Housing has very limited supply and very inelastic demand. Prices will not come down unless there is another 2008 style recession. Speculators will continue to pile in and fleece renters maximally.
You might say well that’s just business, but the algorithmic price collusion is really not my biggest issue. I think there’s a different moral question we should ask. What is the number of single family properties a single company should own in a given market. Should they be allowed to own 100%? My silly libertarian friend would say why not? The market will correct. A stronger thinker would probably see that a legal limit probably makes sense.
You seem to hit the crux. There is a blurry line here and I had a hard time seeing where it really divides legal and illegal until your comment.
Showing that the average rent is this, the min and max are that, and the percentiles look like this is probably legal. Showing historical trends is also legal. Recommending a certain rent based on a single shared algorithm used by all the players begins to cross that line.
Especially when it uses material non-public information in order to do so.
Using material non-public information to set prices is not illegal.
Colluding with other sellers to fix prices is illegal. That is the issue here.
Which makes this a great example of the shittiest side of "AI": not as software techniques to detect patterns and relationships, but as a method for obfuscating your sources. This software really is just saying "don't price fix by talking to eachother, price fix by having it done on our platform for you."
The algorithm is not operating on public info, it is soliciting proprietary pricing and vacancy data that is not available to renters or regulators. That secretive information sharing is the basis of the whole scheme.
And the collusion doesn't stop with this information hoarding; the pricing recommendations are as profitable as they are precisely because many property owners in a market are enacting them with the knowledge that a known quantity of their peers have no intent to undercut. Sure, someone can renege on that, but collusion doesn't require that you have an airtight legal contract to bind all parties; after all, such contracts are inherently illegal!
can you recommend a link that this describes this in detail?
The propublica article linked at the beginning of this thread is how I learned about these parasites. Definitely recommend.
https://www.propublica.org/article/yieldstar-rent-increase-r...
Where?
All I see is this: "A company representative said in an email that RealPage “uses aggregated market data from a variety of sources in a legally compliant manner.”"
The only non-public data are it's own customers. But if I'm a massive landlord with multiple units, I have the same advantage?
The whole idea of anti-monopoly laws is to prevent price fixing by market, and there are numerous (illegal) ways to do that: being a monopoly and using that position to set prices that are not representative of market value (both buying and selling. Iirc antitrust in the us started as a result of standard oil setting the price oil would be bought from suppliers).
Another illegal option is collusion. That is a group of competitors get together and set a price that they will all use, again independent of actual Market value, just because the colluders have sufficient control of a market that when they set a price people have no choice but to pay it. This is super effective when the market it not fundamentally “free” like housing, gas, power, healthcare, etc.
What these companies are doing is providing a tool to launder the collusion between competitors in a market, by having every “competitor” in the market get an “algorithmic” price that is fundamentally tied to the “algorithmic” price they provide every other “competitor”.
If these landlords got together in a room and decided the prices as is happening here, it would be more or less immediately subjected to scrutiny. By doing the same thing via a third party and calling it an “algorithm” it is somehow not subject to the same restrictions.
By the time the lawsuit against standard oil had concluded, they had lost market share, because price fixing doesnt work in real life, as more than a few industrialists have had to learn the hard way. Rents and mortgages are too high, but you are looking in the wrong place thinking housing costs are high due to price fixing.
Do you have some papers to back up the claims that price fixing doesn't work?
Sure, I would recommend you start with "basic economics", 5th edition, by thomas sowell.
Are you speaking in the long term?
Because it certainly works over decades-term.
Standard still had 70% market share when it was charged, and 64% by the time it was broken up.
Over the ~40 years it existed, it was incredibly profitable.
I submit that the long term issues we are having in the united states, are in fact the result of short term solutions. Also, standard oil controlled more like 90% of the market, so in that context they had lost more like 25% by the time the trial concluded.
64% is still an incredible pricing and profitability position. Most firms would kill to be in such a situation!
Apple has, what, 20% smartphone market share?
And look at the margins they're able to run. Granted, boosted by platform lock-in.
I am not finding the phrase price fixing anywhere in that book. Am I holding it wrong?
Its a book on basic economic reasoning, price signals, competition, those things are covered from a principled basis, sorry if it doesnt ctrl+f to tell you how irrational the idea of price fixing is.
I would recommend going beyond Econ 101, as well as observing the real world and reams of empirical evidence. Housing is not a perfectly competitive market for widgets with an abundance of sellers where everyone has perfect information and there are no transaction costs. "(illegal behavior X) could never happen because markets" is freshman dorm at UChicago thinking
Yeah you're gonna need some pretty strong support to make a claim like that - and not just an anecdote from the internet. Do you have any new proof upending long solidified economics?
The entire point is that monopolization confers the same advantage that this scheme does.
Are you talking about this?:
The above quote is the most substantive description of info sharing I could find in the section "Who Uses the Software and How It Work" in the article you linked. Is the claim that the secretive info being shared is the actual rents tenants are paying? Are companies and people not normally allowed to share that?
Companies and people generally do not share this information publicly and most companies consider it extremely proprietary.
So yes, that what's these lawsuits are about. All these companies share this extremely sensitive data (Vacancy data, actual rent and length of rental contract) with RealPage, Realpage algorithms use it to price rent.
For folks who want to learn how these software developers operate:
Armas v RealPage (ND California)
https://ia801506.us.archive.org/35/items/gov.uscourts.cand.4...
Boelens v RealPage (WD Washington)
https://ia801504.us.archive.org/27/items/gov.uscourts.wawd.3...
Cherry v RealPage (WD Washington)
https://ia601403.us.archive.org/33/items/gov.uscourts.wawd.3...
Corradino v RealPage (SD Florida)
https://ia804709.us.archive.org/0/items/gov.uscourts.flsd.62...
Haynes v RealPage (ND Georgia)
https://ia801203.us.archive.org/14/items/gov.uscourts.gand.3...
Kramer v RealPage (DC)
https://ia904705.us.archive.org/0/items/gov.uscourts.dcd.250...
Lazarte v RealPage (ND California)
https://ia804701.us.archive.org/20/items/gov.uscourts.cand.4...
Marchetti v RealPage (SD Florida)
https://ia801602.us.archive.org/27/items/gov.uscourts.flsd.6...
Morgan v RealPage (WD Washington)
https://ia804709.us.archive.org/25/items/gov.uscourts.wawd.3...
Navarro v RealPage (WD Washington)
https://ia601407.us.archive.org/5/items/gov.uscourts.wawd.31...
Parker v RealPage (SD Florida)
https://ia804709.us.archive.org/15/items/gov.uscourts.flsd.6...
Schmidig v RealPage (ED California)
https://ia601603.us.archive.org/30/items/gov.uscourts.caed.4...
Silverman v RealPage (SD New York)
https://ia601506.us.archive.org/19/items/gov.uscourts.nysd.5...
White v RealPage (Massachusetts)
https://ia601603.us.archive.org/30/items/gov.uscourts.caed.4...
Duffy v Yardi Systems (WD Washington)
https://ia800508.us.archive.org/30/items/gov.uscourts.wawd.3...
Chirino v Yardi Systems (ED Virginia)
https://ia801307.us.archive.org/3/items/gov.uscourts.vaed.54...
Can you describe what secret info is being shared in those cases? Is it just the rents people are paying?
Correction:
White v RealPage (Massachusetts)
https://ia801500.us.archive.org/14/items/gov.uscourts.mad.25...
the link at the top of this thread does so.
It does not
https://www.propublica.org/article/doj-backs-tenants-price-f...
Contains links to an investigation and lawsuits where you can read DOJ complaints
Right, but I'm asking a more specific question: what is the secret info that they are sharing? Is it just the rents?
Small nitpick, collusion in a general sense is not illegal, but a price-fixing contract/conspiracy would be a crime under the Sherman Antitrust Act.
Or, Say I own and house, and I want to rent it out. I would calculate how much I would have to charge for rent for it to be worthwhile to me. Why would I care what anyone else is charging?
You have a duty to your family/pets/shareholders to extract maximum value clearly. /s
I added /s because dear lord this thread is full of people who think its true. Housing shouldnt be an investment venue when we have millions unhoused.
That's like saying people shouldn't invest in farms, or pharmacies, or water pumps because there are poor or mentally disabled people who have trouble securing and affording those products.
The difference is whether the good in question is being produced by investment, or monopolized by investment. This has been enshrined in law for over a century.
You want to make more money in housing? Build more housing.
You can of course advertise at any price you want.
But, if the price you calculate this way is too large, no one will rent your house.
And, if the price you set this way is too low, you're leaving money on the table, which you may or may not be fine with. If the difference is high enough, someone might even pay you the rent you asked for, but then rent it out themselves to someone else for the higher price, and pocket the difference, which you may feel cheated by.
Contracts often forbid sub-renting.
Then you probably shouldn't be participating in this discussion.
Because the rental market is detacted from the prices in the ownership market. Rents can be much higher or much lower than the carrying costs of owning.
If you just charge what you need to cover costs you may find yourself with a vacant apartment.
Because you want to maximize your profit and get the most from your investment. You also want to see, generally speaking, if it is even reasonable that anyone would to rent out your house at that price
It’s generally good to have an economy where you can just exchange the market price for the thing, vs. the “price” is low but the actual criteria for getting access to stuff is connections, bribes, waiting, luck, conformity, etc.
Generally when you first build / buy a property the market rent is below your calculated needed rent. however with time you pay the property off and inflation raises the amount the market allows you charge. Thus you need to follow the market price and invest for the long term. In year 40, you can charge below market rent and be fine, but until then you haxe to charge as much as the market allows to break even vs other investments.
You're over-emphasizing the methods by which these people are price-fixing, rather than the result. The result is a price higher than the market-clearing price that is low enough to find tenancy for all housing. Any scheme to generate excess profit by raising rent above this price is (or ought to be) illegal, whether it's colluding to do price fixing, using some algorithm to price-fix, or monopolizing the market.
The FTC is claiming the exact opposite, basically.
Colluding to fix prices, by any means, is illegal. It is still illegal even if the scheme is only followed by a handful of those who "agreed" to it. It is still illegal if it utterly fails to control the price and thus has no material impact.
It's like trying to scam people. You're not allowed to try to defraud people. It doesn't matter if your scam is so bad that it would cost you more money to execute than you would get out of it, and it doesn't matter if no one engages with your scam at all: what you were doing is still illegal.
FTC would not be interested if the scheme hypothetically somehow had no effect. They said that it is still be illegal even if it is imperfect. Empirical reality still gets a vote, for pragmatic reasons.
All store owners should be jailed, then, since the presence of inventory on their shelves is proof of a scheme to generate excess profit by charging higher than market-clearing prices - or it would have sold already.
We only know current inventory. As I write this in early March stores are starting to order their halloween candy (the orders need to be in by somethime in april). You do not know what candy your competitor will order, but this is relavant to sales since you will price match their ads and in turn lower priced candy will sell in greater quantities.
This is impossible. If all the units are rented then by definition the market clearing price is being charged. The collusion comes when landlords start leaving units vacant.
Vacancy is a normal part of the rental market: after a tenant moves out there’s a period of cleaning and repainting, perhaps a more intense renovation, then showing to new prospective tenants, then after a lease is signed but before the new tenant actually moves in. Markets with the fastest-growing rent and the most concern about greed/gentrification/etc have lower than average vacancy.
Which makes sense: the general structure of the housing crisis is tenants are unable to find vacant apartments to rent at the prices they’re comfortable with. Competition between tenants is steep. The end of the housing crisis would look like a big spike in vacancy as a reversal of this dynamic: landlords unable to find tenants for their vacant units at prices they’re comfortable with.
This is why nuance and details are key in legal matters and where the sum is greater than the parts. Where the line gets drawn is often unclear and is often a matter of “I know it when I see it”.
Just individually comparing prices isn’t an issue.
What does become an issue is if (at least) all of the following are met.
- You use an algorithm service does automates all of this
- This algorithm uses both public and private data
- The algorithm is ubiquitous and widely used by almost every relevant market player
- The algorithm tells all users to not negotiate and the users abide by this recommendation
- All of the above has a noticeable effect on the market to the detriment of a big demographic of market participants
Per the FTC filing, many of these are not relevant for deciding if illegal price fixing has occurred.
It doesn't matter how the algorithm operates. If all landlords in an area publically agree that they will set rent prices at 400xx the price of a coke can, they are only using public information, but still engaged in price fixing.
It doesn't matter how many people actually use the algorithm. If you try to start a cartel to do price fixing and only succeed in convincing two of your 50 competitors to participate, you've still engaged in illegal price fixing.
It doesn't matter if individual price negotiation happens or not. If a bunch of companies agree to set the same list price, but also agree that they can offer deals to their customers, they are still engaging in illegal price fixing.
It doesn't matter if the scheme actually succeeds in changing the prices. If two companies meet and agree to set prices at a certain value, but then they backstabber each other and undercut the agreed price, or simply other companies in the space who were not part of the scheme have too much market power to allow prices to change, the original companies still agreed to an illegal price fixing scheme and are guilty.
All of the above will probably have a massive impact on the amount of damages and so on. But they have no bearing on the verdict, as the FTC lays out at length in the filing they link from the article. And this is not speculation, it is established case law.
so the question becomes what it means to "meet and agree".
If these companies never communicated, and all came to the same conclusion of a price floor (that happens to all be the same), then how can it be price fixing?
To me, price fixing require that the parties agree (explicitly, or implicitly with punishment) to _not_ lower the price regardless of the lack of sales. It is not enough to have the same price (however that price comes about is irrelevant).
If they can prove they never met otherwise agreed on a price, but they just happened to take the same decision, then yes, it's not price fixing.
But if they are using the same third party that is telling explicitly telling them "your price should be this", then it's quite clear that they have agreed on the same price. Doing so indirectly doesn't make it any better.
that is the only relevant part that makes it price fixing.
If you own a house and it sits empty for a year because an algorithm told you you could get more for it, you’re an idiot. If you use an algorithm to effectively collude with others and you fail to rent your house but keep rents artificially high, then you an idiot and a criminal.
I don't think it suggested leaving places empty for a year. Rather they wanted to spread out lease renewals. If everybody's lease ends in September then your property is competing with a lot of others. Whereas if you keep it empty until February then offer a 12 month lease, your renter will have much fewer choices and is more likely to stay (despite your demand of a high rent increase).
If you own 100 houses to rent it is already known you should have a few empty at all times.
This generally isn't targeted at single property homeowners/landlords.
RealPage says if you have a portfolio of apartments, that following their recommendations will generate you more overall, regardless of occupancy. Their algorithm literally is "it is better to rent out 19 units at $X, when the demand will drop to 0.94X if there's 20 available". And it can do so because it happens to know that the other 80 units on the market with other landlords will be following the same rule.
1. I'm going to use this pricing service.
2. I'm not going to deviate from what it tells me.
3. I know everyone else (who matters) is using this service in the same way.
What amazed me was that sometimes the recommendation from the software was to not lease a unit to anyone.
you should always have a unit not leased so that you can lease it to someone who needs it now and is willing to pay. If you only have a few units though you will never hit that point where the theory is worth the risk the desperite person comes along.
Why would that desperate person be willing to pay the xN premium needed to cover the idle time? Why would there be exactly one desperate person in the market? You need a curve, charging more as the space fills up. Desperate renters don't have infinite money. People with money are the people who are not desperate, because they have flexible options.
The issue is, you're one person doing this manually. That means there's also a ton of people who don't.
This algorithm, unlike a single person, ends up taking over entire cities, which means now there is no supply & demand. There is supply, and all that supply is effectively the same number.
Demand has no other choice other than meet the supply where they are. It's either that or being without a house.
What if there are multiple vendors selling algorithms? Open source bots doing this? How many bots is a collusion?
Even if you’re talking to your next door landlord and coming up with a joint price, it’s collusion.
Then each vendor’s customers may constitute a small price fixing conspiracy, which is still illegal (price fixing doesn’t have a market threshold before it is illegal) but also a lot less effective, so it probably would be a transitory condition even if it didn’t get punished.
I won’t belabor the point others have made, but if the end result is price fixing, it’s price fixing.
The law isn’t code and it is open to interpretation and intent and outcomes matter, sometimes more than the methods.
So the law is an AI model :-)
Subscribing to a pricing data service: legal.
Using data feed to guide pricing and set initial figures: legal.
Agreeing, either implicitly or explicitly, to let the pricing data feed set the price floor: collusion.
Leaving units unsold and refusing to lower the price despite insufficient demand: usually a bad business decision, possibly indicator of a market failure.
Leaving units unsold to maintain agreed-upon price floor despite insufficient demand: collusion, market manipulation. Congratulations, you are a cartel.
I guess the other way of looking at it is:
What is the value of subscribing to a pricing service where you have no idea how your competitors are using the numbers (over-, match-, under-price)?
Versus what is the value of same, if you know your competitors never under-price?
That value difference is the value of running a cartel.
Pulled from the Sherman Act, Section 1. Available on wikipedia
It is written in a general way to catch all problems going into the future. The problem is translating this to case law. Often judges ask the question "Is this bad for the consumer?" If rents are rising faster than inflation with more consumers becoming homeless citing cost of rent while vacancy rates are increasing, the market is bad for the consumer and the country.
Your acting on independent research doesn't distort the market. If you directly or indirectly control pricing in 30% of housing stock you can drive prices up incrementally because you have influence on every lease offer in that population.
Prices on rental search sites are wishes not actually leased costs and would be missing things like the term, pets, and incentives.
it was illegal. making a mechanical turk to kill people doesn't free the turk from a crime.
Imagine you are Microsoft and you want to collude with Amazon to rig compute prices.
You both agree to follow the recommendations of an unbiased Amasoft Price Calculator tool. This tool uses an advanced algorithm looking at thousands of data points and always returns the same price, $10000 per month.
You both follow this independent tool and end up pricing it the same. Is this a fair system? You’re both subscribing to an algorithm.
The service also requires you to go with their recommendation 95% of the time, and at a certain point requires you to go with their recommendation, and you can only "request an override" that RP can allow or deny at their discretion (of course, they can't enforce it, other than to kick you off their service, with no refund).
That's true by definition. What's shocking is that the developers want to replace leasing agents with a sociopath.
Why is that shocking? It's not just laundering the price fixing, it's laundering the guilt.
Shocking that he figures that the right amount of empathy is zero (see toomuchtodo's comment).
Seems fairly typical of software developers drunk on cool aid
The developer in this case is the sociopath. Not uncommon.
It's a banality of evil situation for the developer and their entire chain of command.
This is shocking? You're kidding right?
But YieldStar is just automating what every landlord does anyways - looks at comparables. And large rental corporations can get pretty sophisticated in data analysis.
So the FTC says "price fixing by algorithm is still price fixing". If I scrap rental data from a website and then determine my own rental price, is that price fixing? Doesn't seem to me.
What’s missing from your view is the scope. yield star is provided the same data to a large chunk of the market (in some rental markets). Going online and looking at comparables isn’t one company setting the price for every market participant.
The scope isn't exactly what's important. Whether their selling to 80% of the market, 1% of the market, or even just to 2 competing landlords, what they're doing is still price fixing.
The only thing that's legal is doing your own pricing research, using your own methods. You can hire a consultant to do this for you, but this burden then transfers to them: they can't consult for multiple competing businesses.
Well, yes, if you continuously adjust your prices to match your competitors, rather than basing your changes on other factors (changes in maintenance expenses, inflation, property values as a whole, changes in area demographics like crime rate, school quality, walkability, availability of services, etc), and you do this at the same time they do, then that can be an indicator to the law that you're engaging in price fixing.
But it's not the only indicator, and likely is insufficient on its own if you don't have significant enough share of the local market for changes in the prices you make to ripple outwards to smaller players. It's hard enough to get them to go after the big players, so they won't go after you.
Usually price fixing requires multiple indicators. The law doesn't have to prove that Bob is talking with Alice and prove that they're discussing how to raise rents with each other. Prosecutors just need to demonstrate that Bob and Alice are both doing the same things, around the same time, which contribute towards artificial increases.
As players get larger, their policies and procedures have greater impact over an area. Their practices get more scrutiny because of this greater impact. That's one (of many) reasons we see large companies spread themselves to multiple cities. While nobody bothers when someone who rents a dozen units uses algorithms to set their prices, they start to notice more when it's thousands of units all concentrated in a single area.
When you get to a position where 4-5 companies can significantly inflate prices for a city with millions of people, how they behave is important.
There are other tricks they use beyond third party algorithmic engagement.
Consider this:
If only 30% of the rental market engage in a laddered renewal scheme where they push renters towards always renewing within the same 2 month period of the year (via 10 or 14 month renewals that are more financially viable than 12 month renewals, or are simply the only option for renewal until the renter is within that two month period) and also add significant lease penalties for breaking out of that schedule, it takes less than a decade to reach a point where 90+% of rentals are renewing within the same two months every year.
And what does that do? It artificially constricts supply (nobody releases their lease until they've found a new apartment, so many units are not displayed as available or need to be accepted sight-unseen) and artificially inflates demand (everybody is looking during this same time period).
The result is artificially increased rent. Which has a side effect of inflating bubbles in the housing market. That may _seem_ good for property owners, as they can sell their houses for more. For a time, until the next pop that everyone blames on lenders with dodgy loan acceptance criteria or other criteria. Until then, homeowners pay inflated property taxes. They might overextend their mortgage with the new perceived value of their home that may eventually drop, etc.
The point is: rental price fixing is real and deliberate, large players with greater impact know better but do it anyway, and this is not the only trick they use. It's just the one they've currently stepped far enough over the line on to get caught at.
While you're right about how regulators typically approach this, it's also important to note that the converse is also true. That is, if they happen to get clear proof that Alice and Bob agreed together to raise rents, then it doesn't matter if they actually succeeded in increasing rents in the area, and it doesn't even matter if they didn't follow through with the agreement: the agreement itself was illegal, and they would get an easy win in court (though damages may be low if the material impact was low, so the case may still not be worth pursuing).
It is typically very rare for such direct evidence of collusion to exist, and thus indirect evidence like you suggest is normally how this is investigated.
However, RealPage and the others here have provided this evidence directly: the way their price recommendation service is structured, the terms and conditions and so on, constitute direct evidence of an explicit attempt at price fixing. So, even if it turned out that all of landlords participating in this scheme actually "cheated" the price recommendation algorithm, and even if it turned out that rents went down or stayed the same when RealPage moved in, they would still be guilty of price fixing, per the FTC.
If you scrape rental data, then send an email to every person renting a unit saying "I recommend you allow your unit to sit vacant rather than renting below this price", that would be price fixing.
I worked on a direct competitor to YieldStar and we had very high parity to YieldStar before we were acquired by Realpage. At least, the discussions at my smaller company pre-acquisition about negotiating price was that one unfortunate mis-negotiation could result in a Fair Housing incident (legitimate or not)
For example - Tenant 1 of racial profile X walks through the door and is a good negotiator. Tenant 2 of racial profile Y walks through the door and doesn’t negotiate. Tenant 2 finds out about Tenant 1 and opens a discrimination case under FHA.
At least the culture at my smaller company was to do everything to steer the rental property away from potential Fair Housing incidents. However, we did learn while working on the competing YieldStar product that the simple act of removing the negotiations caused a big knock-on effect of creating a revenue increase. That kind of put a bad taste in our mouths, because we didn’t like the fact that it wasn’t the software that was causing the increase so much as the pre-requisite of stopping negotiations. We started experimenting with how to improve the algorithm even more and if it could create bigger gains that drove more product value than simply the “don’t negotiate” effect. But we were then acquired by Realpage.
There are other ways these algorithms discriminate indirectly. For example, these algorithms tend to dial up prices around holidays like Christmas. And they do that because anyone who wants to sign a lease around the holidays has a much higher percentage chance of having some sort of life turmoil. (like maybe a family fight broke out or abuse happened on Christmas that caused someone to move out) From a business standpoint, the rental property would argue, “Someone in a bad way has a statistically more significant chance of also causing undo cost increases or breaking leases early.” — so the algorithm cranks up the prices to make up for potential costs.
Dialed up at the level and scope of industry control that Realpage has gained over the years, then you encounter all kinds of other issues.
The other perspective that these products take is they look at the short term rental industry like hotels and AirBnB. The business approaches by wondering, “Why can’t long term rentals be as technologically sophisticated as the short term rental industry. Let’s create a product that brings long term rentals automation into this decade” and the issue you run into is that short term rentals have 30x-100x the data points that you have. So it creates a gravity towards reaching into as many data points as you possibly can in order to make the product half as compelling, which includes reaching into your own internal data.
How did you feel about all of that personally? What was the culture inside a company like that?
From the outside, i couldn't possibly imagine any person who's ever had trouble making rent playing along while their company was unnecessarily inflicting that pain on large numbers of other people. Yes, when a company is running things they'll do what they can to avoid lawsuits, even if that is "become a soulless algorithmic profit extractor". But businesses are made of people. Was there anyone in the company that had a problem with it?
It's more than 'discourage'.
RealPage considers (their own words) landlords to be "cheating" when they deviate from the recommended rates.
Landlords are contractually obligated to follow RP recommendations 95%+ of the time:
RealPage is simple fucking cartel software.
This is blatant flouting of the law in confidence that the government will collude. Elections have consequences.
The usage of this algorithm prevents the lowering of prices by simply building more units as the occupancy rate can simply be adjusted.