The U.S. Federal Trade Commission (FTC) and Department of Justice (DOJ) have taken a firm stand against what they identify as algorithmic collusion in the residential housing market. The agencies are voicing clear opposition to practices by landlords and property management companies that may be seen as modernized price fixing through the use of pricing algorithms.
The action revolves around a growing concern that the use of algorithms by landlords to determine rent prices may constitute an unlawful form of collusion, as rent prices have surged nearly 20% since 2020. This has had a significant impact on lower-income consumers, with about half of renters now paying more than 30% of their income in rent and utilities. Given that rising shelter costs were responsible for over two-thirds of January’s inflation, the matter bears substantial economic and societal weight.
It’s not the algorithm per se that’s the issue, but how it’s used. “When you replace once-independent pricing decisions with a shared algorithm, expect trouble,” the FTC warns. The underlying principle is that an algorithm cannot perform actions that would be considered illegal if done by a human agent. For example, competitors using an algorithm to collude on pricing is just as illegal as if they were coordinating through human intermediaries.
The recent legal brief filed by the FTC and DOJ states, “It is per se illegal for competing landlords to jointly delegate key aspects of their pricing to a common algorithm, even if the landlords retain some authority to deviate from the algorithm’s recommendations.” This implies that even when landlords retain some pricing discretion, the agreement to use a common pricing tool can be considered collusive if it restricts independent competitive decision-making.
The focus has been on software like “RENTMaximizer,” which has been used to determine rents across millions of apartments. With significant consolidation in the housing market driven by private equity-backed firms, the potential for algorithmic price collusion is seen as a threat to market competition and to tenants’ ability to find affordable housing.
The FTC and DOJ’s position is bolstered by past actions, including a guilty plea secured by the DOJ for using pricing algorithms to fix prices in online resales, and ongoing cases against meat processing competitors sharing price-related information. The message here extends beyond the housing industry, warning all sectors about the potential legal implications of using collusive algorithms.
The agencies’ current intervention in the rental software market follows an investigation by ProPublica and signals an ongoing commitment to antitrust enforcement under the Biden Administration. The FTC blog post also highlighted the substantial role of private equity in alleged algorithmic price fixing. From online resales to meat processing and now residential housing, the government’s scope of scrutiny seems to be widening as it targets the use of pricing-related algorithms.
While technology promises efficiency, the agencies are making it clear that they stand vigilant against its misuse that undermines competition or exploits consumers. The message to other businesses is unambiguous: algorithm or not, collusion remains illegal. As the legal landscape continues to evolve with technology, businesses must tread carefully to ensure their use of algorithms complies with antitrust laws.
Relevant articles:
– Price fixing by algorithm is still price fixing
– FTC Issues Warning on the Use of Algorithms to Recommend or Set Prices, Foley & Lardner LLP, Wed, 06 Mar 2024 08:00:00 GMT
– DOJ Backs Tenants in Case Alleging Price-Fixing by Big Landlords and a Real Estate Tech Company, ProPublica, Thu, 16 Nov 2023 08:00:00 GMT
– DOJ, FTC oppose Dismissal Motion In Yardi Lawsuit, The Real Deal, Tue, 05 Mar 2024 08:00:00 GMT