The Department of Justice is planning to file a civil lawsuit against rental housing software company RealPage, allegedly for enabling property companies to collude on what they charge tenants in violation of antitrust laws, Politico has reported.
Based on a statement of interest the department filed in a class action case against RealPage last year, the DOJ believes it’s not necessary for the property companies to know about each other for them to partner in collusion.
Simply by inputting their data into the company’s software, which helps companies know how much rent to charge for a unit, DOJ’s argument goes, the property companies are acting in concert with one another.
Based on this view, RealPage invited concerted action by having the property companies submit their data to it for use by its software’s algorithm and, by choosing to participate, the companies effectively gave their consent to the scheme.
That amounts to concerted action under Section 1 of the Sherman antitrust law, DOJ says. “It makes no difference that prices are fixed through joint use of an algorithm instead of by a person,” the agency says in its filing.
From an antitrust standpoint, this is a dangerously low bar for finding collusion and it would make the use of algorithms in pricing in any industry an enforcement target should the agency prevail in a lawsuit, says Jay Ezrielev, principal of economic advisory firm Elevecon, in an analysis he published on PYMNTS.com.
“Although the DOJ is targeting rental markets, the DOJ’s legal theory has broader implications,” says Ezrielev, an advisor to Joseph Simons when he was chair of the Federal Trade Commission from 2018 to 2021. “Applied more broadly, the theory would raise considerable obstacles for the commercial use of algorithms, proprietary data, and artificial intelligence, resulting in significant harm to innovation and efficient operation of markets.”
The framework DOJ is applying to RealPage implies a remarkably low threshold for classifying conduct as concerted action, Ezrielev says.
“Under the DOJ’s analysis, firms using a common third-party vendor may be engaged in a concerted action to implement a price-fixing conspiracy even if there is no agreement among them, whether tacit or explicit, to restrict output, marketing, or investment or to maintain price levels,” he says.
What’s more, these firms have no contact with each other or know each other’s identity; they’re unaware of the commercial terms of dealings between the vendor and other firms; they don’t know whether others are complying with the alleged price-fixing scheme; they’re free to deviate from what the algorithm recommends if they want; and there’s no evidence to suggest each firm isn’t simply acting in its own self interest.
And after all this, RealPage has relatively small shares of the relevant markets.
“Considering the remarkably low threshold for identifying concerted action, the DOJ’s analysis is likely to find concerted action even when a price-fixing conspiracy is implausible,” Ezrielev says.
Algorithmic pricing is already being used in industries throughout the economy, he says. Does that mean companies in all of these industries are colluding?
In the retail sector, for example, a company called Wise Athena uses an AI algorithm to help consumer packaged goods companies optimize their pricing so they can try to get more sales at better margins.
“A DOJ lawsuit against RealPage would … have a chilling effect on the development of [these kinds of] applications that offer algorithmic AI solutions through data aggregation across clients,” he says.
Shubha Ghosh, a law professor at Syracuse University, raised the same concern last month in a piece for Legal Dive.
“It is a basic maxim of antitrust law that collusion is unlawful anticompetitive behavior,” Ghosh said in the piece. “An agreement to fix price requires the meeting of human minds intending to act anti-competitively …. The proposed approach upends this well-recognized requirement by allowing the use of AI technology to serve as proof of an agreement.”
