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Comment by bko | Hacker News Reader

Charging what others charge is called the market price. You may want to charge less to attract more customers from competitors, or charge more and try to differentiate your product.

Customers do the same thing. They look at price and shop around.

Collusion where a group agrees to charge more than the market price together is bad (and illegal). Its worse for the individual supplier as they could charge less and get more revenue, but done collectively can have a potential for a higher total revenue given everyone obeys. But there is always an incentive to cheat and make more individually while hurting everyone else collectively. Which is why the legally enforceable aspect is important

But these aren't the same thing

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I thought what they did was this:

Get Apartment A to raise rents and enforce these increased rates.

Then go to Apartment B and say “look you gotta raise your prices to the market rate, apartment A is doing it so you can too”.

Then go back to A and say “hey the market can bear this price, why don’t you raise your rent?”

They also encourage owners to keep units vacant (which they should be able to afford if they’re getting prices to go up) rather than rent at a cheaper price.

So this feels like collusion to me. But they also say “Everything we do is legal!” - and if that’s the case we need better laws and regulation to avoid this type of behavior. It’s like a distributed cartel - you can’t charge SF rates in Baltimore but what if you could get Baltimore rates to go up by X% YoY with this tactic? Seems unfair.

And higher rent means the valuation of the property goes up. All the incentives are there for them to do this, we just all need to really convince ourselves they would never do such a thing.

...

Investors aren't stupid. If you're financing a building with high rents but high vacancy, it's pretty obv and their revenue will necessarily be lower than charging market price (which is by definition the profit maximizing price to charge).

If someone can figure out the con on a message board unrelated to real estate I'm pretty sure investors financing this stuff could figure it out as well

Investors have heard of such a thing as "diversification" and will surely look at their entire portfolio before jumping to short-sighted conclusions. It's very likely real-estate investors have an intimate knowledge of rental markets. There's a nontrivial cost to acquiring tenants and maintaining the buildings.

If they did the math after all the various factors are considered and this happened, then clearly this is the best play from their perspective. It's not even malice it's just "economic sense", except the way the economics works out just happens to screw people with barely enough money to afford rent.

That still doesn't mean they're not culpable under the textbook legal definition of collusion.

Banks are that stupid. For loans, you demonstrate expected rental income, based on rents of comps. We were in that exact situation. Just provided estimates based on a listing search. Question of vacancy rates or whatever did not come up.

Did you have a stipulation of maintaining a certain debt service coverage ratio, otherwise the lender can consider you to have defaulted?

No. This was multifamily, and we occupied one unit. Wrt default, not sure wrt all the details with property liens, but isn't that only when you don't make your monthly payment, regardless of income?

An asset can be owned by multiple investors who have competing interests with some wanting to take a large amount of risk by allowing real estate to remain vacant if it can mean a larger reward later.

Louis Rossmann has made numerous videos about vacant properties where asking prices for rent are significantly above what he considers to be market value. Notably, https://www.youtube.com/watch?v=NdfmMB1E_qk and the Reddit post which that video comments on: https://www.reddit.com/r/nyc/comments/innhah/comment/g4ai27m...

The TL;DR is that there's weak evidence that the contractual conditions attached to financing from investors who seek high risk and high reward makes those landlords ignore local market conditions and incentivizes those landlords to leave commercial units vacant instead of renting them out at market value.

Sure they can try that. And helps if there are only two options, when in reality there are many (same town, other town, live at home with parents, move in with partner, etc).

But that first person takes a Big risk raising prices since he is necessarily losing money relative to charging market price in the hopes others come along in significant numbers.

Leaving rooms vacant is incredibly expensive. Profit margins are not that high. So think if you're making 15% margin eating a single month of rent would cost you profit over 6 units. It's a hell of a gamble

This is not hypothetical, it actually happened, and a lot more than two landlords were involved. 14 companies, and "Across a wider Washington-Arlington-Alexandria area, more than 90 percent of units in large buildings are subject to RealPage pricing, according to Schwalb's office."

Profit margins are high if you collude with 90% of the market to artificially raise prices.

Where did you get that from the article?

> The complaint, filed earlier today by Attorney General Brian Schwalb, focuses on the multifamily landlords' use of software from Texas-based firm RealPage, which suggests rental prices based on a pricing algorithm. Key to those models, according to the suit, is the data fed in from the landlords and the pressure RealPage puts on them to stick to the code-derived rental rates.

It's a complaint. Nothing was filed yet. And it looks like they used a pricing algo to suggest a price? Im suggested a price when I sell on eBay, or StubHub or Facebook marketplace, or pretty much anywhere. I don't know how they "pressured" landlords but maybe a box like "we suggest market price to maximize returns!" eBay similarly warns me when I stray too far away. The pricing algo is actually a fabulous service.

And if they're a property manager then their job is to find the market price and rent out apartments at the behest of landlords. I really don't see the technical issue here. You can say collude and conspire, but what does that mean in technical terms. And what does "being subject to" the algo mean? Exposed?

> You can say collude and conspire, but what does that mean in technical terms

RealPage requires users to accept some % of centrally-decided prices.

That's the issue.

> And what does "being subject to" the algo mean? Exposed?

No. It means being required to set prices to what the algo says, instead of being allowed to "defect",with lower price.

I got it from the linked Propublica investigation. There is quite a bit of information in there about how the software works and what the real-world results have been.

I like your comparison to other marketplaces. If an overwhelming portion of a certain product were sold on eBay, and eBay suggested prices to all sellers that nearly all of them accepted, I would consider that collusion as well. If that product were a luxury good like Pokemon cards or something, I would consider the collusion unethical but maybe not a huge deal. If the product were a fundamental human right, like housing, I would be very upset and would want the government to get involved.

Indeed it is a gamble.

Which is why the very bad and illegal part, of the software company trying to enforce the high prices, was so bad.

This only works if landlords can't "defect" and lower prices on their own.

That's why it's collusion.

Yeah I you have just explained why it is collusion. In a free market, a landlord raising price too high will be afraid of losing market and having too much vacancies. But not here, he is relatively assured he won’t be losing much since other landlords won’t undercut him, since they have implicitly agreed via the software to follow the same pricing. That’s collusion. Period

none of that is collusion.

This IS collusion because RealPage goes to apartment A and B and says "give us control and we will list your prices together to get the highest price"

Except that's not quite what's happening here. RealPage sets the price that they "suggest" landlords should pay. The landlords had to accept these prices, or ask for approval if they wanted to charge differently. I don't know how often these requests were approved or even requested, though.

Afaik last time I read about this, if the landlord refused to accept more than some % of the requests for increase (around 20% iirc), they would be kicked out of this cartel program.

It’s cartel behavior.

If you replace ‘an algorithm’ with ‘a guy named bob’ and the scheme sounds illegal, it should be illegal.

If every landlord in town all went to a guy named Bob to ask what they should set their prices at, that would be illegal collusion.

That isn't illegal tho. It is common. Most industries publish pricing data and targets.

Hell, by that metric the stock market is collision.

Yes, cartels/trade associations are common.

I don't really care whether there is a cartel for paperclips.

It doesn't mean they are okay when it comes to critical sector like housing!

information sharing isn't collusion and isnt a cartel. It is only a cartel when there is agreement to fix prices.

And yet our capitalist society discourages laborers from sharing information about their wages (labor price). Wonder why that is...

Information sharing is an integral component of cartel behavior, especially when it's highly structured in cartel software like RealPage. Where there's smoke, there's probably fire.

disagree. Information sharing is also part of price discovery in every single market, legal or illegal.

Information sharing is a necessary but insufficient component of cartel behavior.

> Wonder why that is...

Because selling labour is the most cut-throat business there is. To the point that we had to create extensive labour laws to stop the bleeding that always ensues when unencumbered labourers start competing with each other.

Revealing price information to your competition puts you at a competitive disadvantage. If they know you charge $30 per hour, they'll jump in and offer to do it for $29 per hour. Conversely, if they don't know how much you charge, they are left to guess. If they think you charge $35 per hour, they'll offer $34 per hour, but then you'll win as you charge $30 per hour. Obviously you are disadvantaged if you let that information be known. Especially if they can withhold their information from you.

No business wants to reveal price before they have to. Retail has to get the price out there early as it is the only way to get customers in the door, but businesses will keep things as close to their chest as possible. Try buying anything geared towards enterprise customers... In fact, ideally, they will leave the customer make the first offer as it is also a disadvantage to go first.

That depends entirely on the balance of supply and demand.

If there are 10 firms chasing 9 employees, more information will drive up prices. IF there are 10 employees chasing 9 jobs, more information will drive down prices.

Quite true. The former situation is rare, though. Even when it appears that there are 10 firms chasing 9 employees, a 10th is likely to materialize when they find out where the other vendors are situated, diminishing the opportunity for the 9 that were already in line.

It isn't that rate. This phenomenon is the reason that every single job doesn't pay the minimum salary required by law.

Kind of. That's just supply and demand. But markets are never perfectly efficient.

From my personal experience working in an industry that hires a lot of minimum wage workers, I encounter a lot of people who just don't realize that they could make more doing something else. I mean, they understand in some nebulous way that higher paying jobs exist, but not in an actionable way. With more information, they might notice that they could squeeze out a particular guy making $30 by doing the job for $25 per hour. But they don't even go there because they lack the information needed.

At the same time, those minimum wage jobs I speak of aren't going to pay more if the people leave – the work would just disappear. So while these individuals would make more, they would place downward pressure on the overall market in making such a move. By keeping the information hard to come by, however, you can avoid some of that competitive pressure.

I think we basically agree.

> Revealing price information to your competition puts you at a competitive disadvantage.

> No business wants to reveal price before they have to.

Interesting. If RealPage/etc is "just" about information sharing, as many of its defenders in these comments are asserting, why would any rentier use it? There must be more going on.

Anyway, coworkers or friends sharing labor price information clearly has nothing to do with your rebuttal. The main outcome is that one party might be inspired to ask for a higher wage. It's a crude form of coordination, but that is why our capitalist society discourages it.

> why would any rentier use it?

To facilitate collusion.

Although I understand your larger sentiment. As a farmer, I have to align my prices with the Chicago Board of Trade, which in many ways is similar. Once price data becomes pervasive enough, there is a tipping point where you have to reveal your prices early to remain competitive. I mentioned retail earlier as being another example of where that has taken hold. That theoretically is a reason why rentiers could be compelled into using such a system absent of collusion taking place.

> but that is why our capitalist society discourages it.

I am not sure I understand the attribution to a capitalist society here. It was also discouraged to talk about income in Soviet Russia, as an example. That competitiveness of which we speak is not a function of a capitalist society, it is a function of human nature. Hell, I bet in early hunter-gatherer societies it was discouraged to talk about how much of the gathered resources you were able to keep for yourself.

> It was also discouraged to talk about income in Soviet Russia, as an example.

What evidence do you have for this? In current "socialist" countries like China, talking openly about wages is common and not discouraged.

The incentives are crystal clear. Price coordination works, and workers in USA are brainwashed against doing it in their own benefit.

Except China moved to being a capitalist society many decades ago. The Nordic capitalist societies even go as far as to officially publish everyone's income data. You've not explained your attribution to capitalist societies and seem to be working hard to discredit your own idea.

Again, as we have discussed several times now, revealing one's price early starts to become necessary to remain competitive once price data becomes pervasive. We can find many examples in the USA where that has become true. Clearly there is nothing about even American society in particular that keeps everyone holding their price as a well kept secret.

Such data is not readily available in the USA with respect to labour in general, however, thus asymmetrically offering up such information puts one at a disadvantage, hence why workers are generally guarded. You even point out yourself that coordination is necessary to remove that disadvantage, so it seems you already understand this beneath the exterior trying to act to the contrary.

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