Price fixing by algorithm is still price fixing
ftc.gov
ftc.gov
"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."
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:
> Consistent with their agreement to impose rents generated by RealPage RM Software nearly all the time, Defendants agreed to limit overrides. For example, a RealPage LRO training document states: “Overrides should be few and far between.” Similarly, internal RealPage LRO training documents teach cartel members’ regional managers to beware of “Override Overload” or “rogue” leasing agents who too frequently override the LRO-generated pricing.
> An internal presentation created by Defendant Greystar explicitly acknowledges that RealPage RM Software users should each seek to accept at least 95% of the RealPage-generated prices, emphasizing that “Discipline [o]f using revenue management increases more consistent outcomes.”
> Former Greystar employees have similarly confirmed that negotiating rents other than those set by the RealPage RM Software was unacceptable.
> Even where Participating Landlords do not enable auto-accept, most landlords cannot, on their own, charge rents other than those generated by RealPage’s RM Software— landlords can only “propose an override.” The landlord must then provide a written business justification for why they wish to depart from the RealPage-generated rent.
RealPage is simple fucking cartel software.
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?
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!
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.
can you recommend a link that this describes this in detail?
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.
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.
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.
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.
Individually, without speaking, every landlord decides that it's in their best interest to charge the highest (per square foot) price that a nearby property is charging. They also all individually understand that if they leave units vacant instead of undercutting eachother, the market impact in favor of their interests will be sufficiently positive to justify the lost immediate revenue, and they trust (blindly) that no landlords will defect from this prisoner's dilemma. There's no communication at all; they all just understand game theory and have blind trust in their fellow landlords.
This would have the exact same material impact on renters. The only difference is that it's slightly harder to pull off. Is it illegal, and should it be illegal?
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.
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.
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.
The law isn’t code and it is open to interpretation and intent and outcomes matter, sometimes more than the methods.
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.
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
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.
that is the only relevant part that makes it price fixing.
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.
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?
> Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal
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.
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.
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.
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?
Most products centered on whether you actually got a lease or not in the first place (and it was mainly crime related). Once you got into a lease and were struggling to pay rent, anything else would have moved to a manual action taken by the landlord if they wanted to be a soulless jerk. (Not sure about whether Realpage has some kind of automated product for that but we didn’t)
As for competing YieldStar product. Our main objection was that if we were to build price projection software, it’d better reflect the actual market. The algorithm and heuristics like “raise rent on Christmas” didn’t sit well, so we raised the conversation and stalled the project for a few weeks. Eventually we were told we’d get to revisit our concerns in the V2 but we’d be overruled for the time being “just to get out this MVP”.
That's true by definition. What's shocking is that the developers want to replace leasing agents with a sociopath.
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.
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.
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.
Another thing they did was to offer lower rent if you moved into a unit that was vacant. They ”incentivized” people to move every year instead of just increasing the rent a reasonable amount. I’m talking rent going up $500-$1,000/month unless you moved into the identical unit next door. Most of the people in the build paid the increases but we were young so we moved.
Our first year we lived in a small 1br. When the lease came up they wanted to increase our rent by $600/month. We opted to move into a huge 2br with limited light that had been vacant for a year or two. When our lease on that one came up they wanted to more than double our rent because there was such high demand for the unit.
We were the demand.
This literally sounds fraudulent
I have a hypothesis, that the reason for many ailments in Western economies is that in the past 20-30 years we have created a lot of parasitic, highly-sophisticated economic fraud, and regulators have not caught up to it yet.
Well, it's more than an hypothesis, there are books about it:
https://www.penguin.co.uk/books/451795/technofeudalism-by-va...
Any other way to describe darlings like Uber, AirBNB, what Amazon became, many SaaS (looking at you MSFT Office) is simply disingenuous
When I was just out of school I did this in a large complex with my wife more than once (we had different last names and used her parents address for mail).
The first time, we didn't even have to move, because she got the pick of open apartments... one of which was ours. We worried they would want to paint it, but I guess since I'd only had a it a year, they didn't bother. The Sales person was happy because they got commission anyway, and we got a free months rent rather than paying an extra month's rent in increases.
Real Estate will stop being a free money machine when the government stops artificially restricting housing supply with single-use, single-family zoning.
Are you aware that the government is the entity preventing housing from being built in many cities?
I don't think zoning should be abolished or anything but clearly the regulations the US has now, at least, are incorrect and restrict supply far too much.
On the contrary, the skyrocketing homelessness rates around the country are showing that demand for housing is more elastic than people thought.
this price fixing is partially about units not even for rent which is a different problem you don't want. (but you want some units not for rent while they remodel)
Unless you're talking about a tax on vacant properties.
I lived in floor 30 of a “luxury” skyscraper in Seattle built after ~2015. We had an algorithm for pricing according to the landlord and the class action letter we received. Amazing water views and city views. Clearly desirable housing in a city flush with rich people and a massive housing shortage. I was the only occupant on the floor and the only tenant at the time ever to live in that unit. They tried to raise my rent like $1000/m when lease was up. We paid it since we had just gotten a raise. Next lease renewal was about $1000 again and we moved out because $2k extra was just too far above comparable units nearby. They literally offered us a Starbucks gift card to stay. We could see the other vacant units listed on the buildings website and they were always priced way above comparable units in neighboring buildings.
Oh and to directly answer your question, I’m guessing the building was never more than half full. The mail room was never full, and the parking garage had about 20/100 spots in use.
In a lot of European countries, the landlord cannot raise the rent as he wants, there’s a maximum per year (usually a bit lower than official inflation).
Isn't the ideal vacancy rate always one unit? Any more than 1 unit and you could be collecting more money. Any less than 1 unit and you may be underpricing.
Ignoring all other considerations, the current incumbent political party in the US presidency on average tends to produce effective & functioning federal agencies, and the other party on average tends to produce corrupt & dysfunctional federal agencies.
I try to point this out frequently because voters tend to ignore this kind of thing until it affects them personally, or they read about some isolated grievance in the news. But it really should be considered a more important topic.
the federal agencies are mostly employees have been there through many administrations. How do they suddenly become corrupt and dysfunctional besides these employees (90% of the current incumbent political party) suddenly becoming corrupt and dysfunctional?
That means leadership can change the course of an organization by ruthlessly making them do other things until people internalize those things as the right thing, or leave.
That only explains decay though, not the magical idea that under the right party things spring back. The best to hope for is a democratic president to slow down the decay. But it is simply so much easier to tear things down than to build things up, that it will take a lot of democrats to see actual improvement.
However, they've learned. At the end of his term, Trump created a new classification of employment, Schedule F. Schedule F employees did not have civil-service protections and could be fired on a whim. Fortunately, he lost the election before he could use it. Biden removed it.
Now, Trump-aligned groups like the Heritage Foundation are running programs to recruit Trump loyalists whose main and almost sole qualifications is loyalty to Trump (see Project 2025). They don't want a repition of last time where federal employees had the gall to actually follow the law instead of the dictator.
voters tend to ignore this kind of thing until it affects them personally
Price fixing in buying/hiring is not monopoly btw, it's monopsony.
My brother studied tacit collusion as part of his econ PhD (and new lawyers was one of the markets he looked at) but it would be a hard thing to actually legislate against and isn't illegal. You can't just be like "you guys can't pay the same".
https://abovethelaw.com/2024/01/latham-salary-2023/
What's missing is the pressure on other firms to match. This is more like the leader raising pay and other firms chasing them.
With housing, everybody has to live _somewhere_.
Unfortunately, I think the genie is out of the bottle, and the actions by the ftc will be reduced to whack-a-mole attempts to bust transgressors who make the effort to have plausible deniability while still using price-fixing algos.
Without the price fixing though, apartment complexes will actually have to compete against each other on rent.
There is no limit to Price fixing for inelastic good like food, housing and medicine.
Public information doesn't tell you if competitors will underprice to sink you, or if they are likely to hold a high price even against lower occupancy. This software tells you and your competitors whether or not to do that, and bases that guidance on its inside knowledge of its own customer base. That is what the FTC and DoJ are calling collusion, based on my reading of the article.
It baffles me, that this is not a general rule as it forces fair market prices for a illiquid supply (it takes time to build new housing, if it is even possible).
In this case you'd just complain that a company keeps units vacant to the municipality who would fine the company until it is brought in order.
But having rules like this removes some speculation.
Isn’t this also price fixing?
The issue with the rent thing is that the algorithm sets a price, so collusion could easily be offloaded onto the algorithm. Something similar should also happen with salaries before this becomes a real problem right?
They can solve the problem by making the data public, thus giving the same competitive negotiation advantage to the employee. The publicness is the key part -- it's price fixing when They trade information with Each Other, information that is unavailable to You and is essentially valuable to both sides in negotiating an employment offer
Enjoyable to watch norms about language (IRL) change.
I think it’s refreshingly well written and accessible. Not an 800 page blob of legalese.
Nice job to the authors.
It's not the only example of bad writing.
> And even if some of the conspirators cheat by starting with lower prices than those the algorithm recommended, that doesn’t necessarily change things. Being bad at breaking the law isn’t a defense.
Breaking the law less or not at all is indeed a defense, possibly a successful one. It also doesn't constitute being "bad" at breaking the law.
Lots of people who work in government agencies feel that it is okay to lie to the public to try to achieve greater goods. They are wrong.
> In one news release, Realpage offered its property management clients the ability to outsource daily rent-setting and revenue oversight. “We believe in overseeing properties as though we own them ourselves,” the company said in a presentation that plaintiffs’ lawyers referenced in the lawsuit.
> The lawsuit quoted one unnamed witness, a RealPage pricing advisor, saying that some pricing advisors told property management employees that they had to follow the software’s recommendations. A leasing manager at a RealPage client said, “I knew [RealPage’s prices] were way too high, but [RealPage] barely budged” when the manager asked to deviate from the suggested rent.
> An update to the software tracked not only clients’ acceptance rate, but also the identity of the landlords’ staff members who had requested a deviation from RealPage’s price, the lawsuit said. Compensation for some property management personnel was even tied to compliance with the company’s recommendations, it said.
So if this is true, this also means that managers are being compelled to adopt the recommendations more than as mere suggestions.
https://www.propublica.org/article/doj-backs-tenants-price-f...
If you use the same algorithm it's not necessarily illegal, but it will be if it results in price fixing. If you take into account competitors prices its not necessarily illegal, but it will be if it results in price fixing.
But yeah, your latter case sounds easy to fall into gray territory, since it seems illegal to agree on prices even if intermediary makes it unclear with whom exactly you're agreeing with
The software cited, RENTMaximizer, offers aggregate price information for property managers with the aim of maximizing prices.
Would a RENTMinimizer product, given away for free to tenants, help? It would show aggregate rents that tenants pay, including minimum ones, with the hope that they can use this information for more confidence when negotiating rents.
We thought that cars is answer, but cars only deferred the market saturation, plus we need more roads and parkings.
Remote work may be an answer, but people still need schools, shops and restaurants.
> Agreeing to use an algorithm is an agreement. In algorithmic collusion, a pricing algorithm combines competitor data and spits out the suggested “maximized” rent for a unit given local conditions.
This sounds exactly like what a compensation consultant does (collect competitor data, including data from other clients, and suggest a comp range)?
https://mcusercontent.com/cc1fad182b6d6f8b1e352e206/files/25...
I'm open to discussion of how to resolve that though, any ideas?
Doesn’t matter if a big landlord or little landlord are doing it.
Many players are not allowed to collude.
If a player gets too big it faces antitrust / monopoly issues.
NOTICE: The FTC website is currently unavailable. Thank you for your patience while
we work to restore service.When you lease a place to a tenant, there is a stamp duty ($100+) that the tenant pays. Then the landlord submits details about square footage, number of rooms, and the price it was rented at.
Then the government shares the data in an aggregate manner: https://www.ura.gov.sg/Corporate/Property/Property-Data/Priv...
Someone explain how this is different from pricing vehicles based on KBB or other data? Genuinely curious because I don’t know what these agreements look like.
If multiple seller/landlord parties all agree to have a single algorithm set prices I understand the FTC’s point. If however they all reference an algorithmic data point and freely choose to set prices I don’t see how that’s collusion.
If multiple seller/landlord parties all agree to have a single algorithm set prices I understand the FTC’s point. If however they all reference an algorithmic data point and freely choose to set prices I don’t see how that’s collusion.
"Price deviations don’t immunize conspirators. Some things in life might require perfection, but price-fixing arrangements aren’t one of them. Just because a software recommends rather than determines a price doesn’t mean it’s legal. Setting initial starting prices or recommending initial starting prices can be illegal, even if conspirators deviate from recommended prices."
Would be better to see an argument from the FTC grounded in evidence and analysis, because I don't get what this is based on. Software recommends a price, sure, but so does any appraisal in any industry. For how long can I use an appraisal service before the FTC says I'm committing a crime? I just feel like the lines are not drawn very clearly with this argument.
Aside, if anyone from the FTC is here right now, for God's sake do not use "IRL" in official writing.
That's the key. The problem is the agreement; that results in price fixing. Even if someone is allowed "some pricing discretion"(ie maybe they can deviate 8%) it can still be illegal.
Maintaining full pricing discretion is what referencing KBB on your own and making a determination outside a pricing agreement would be; not illegal.
From what I can tell. Not legal advice.
A second point that bothers me about the blog post. It's immaterial to the brief, but the blog says the rent is up 20% since 2020, citing CPI-U. But it fails to account for increasing incomes. Median household incomes, nationwide, have kept pace with rents.
What? Commodity futures are viciously competitive open markets, where do you see the connection?
This is no idle threat. Be sure to click on that link and find out that in 2018 the FTC stopped the greedy corporate profiteers in the wall poster industry from price fixing back in 2013. Algorithmic price fixers beware.
That one weird trick that doesn't work well under the law.
What’s described in the article is a bunch of estate agents agreeing to use a price recommended by 3rd party software and minimize cheating on that price, which is price fixing.
Based on the understanding of the post, I think both of those would be considered price colluding.
https://www.in2013dollars.com/us/inflation/2020?amount=1
$1 in 2020 is equivalent in purchasing power to about $1.19 today, an increase of $0.19 over 4 years. The dollar had an average inflation rate of 4.48% per year between 2020 and today, producing a cumulative price increase of 19.17%.
This means that today's prices are 1.19 times as high as average prices since 2020, according to the Bureau of Labor Statistics consumer price index. A dollar today only buys 84.034% of what it could buy back then.
gas was $3.22 in 2020 but is 42.17% higher in 2024, so by that metric rent is proportionally lower (than the 20% increase in rent)
Things changed rather dramatically, theoretically,because of different presidential puppet-string-pulling in terms of the FTC: https://www.skadden.com/insights/publications/2021/06/lina-k...
https://www.bbc.com/news/world-us-canada-55738746
After less than 24 hours in office Biden signed 15 executive orders whereas Trump had signed 8 after two weeks (Obama had signed 9 after two weeks).
https://www.bbc.com/news/world-us-canada-55738746
information that comes from government agencies is almost always data that has been arranged in such a way as to make those in power look like they're the good guys.
> Such software can allow landlords to collude on pricing by using an algorithm—something the law doesn’t allow IRL.
"IRL"?
Search for "adherence to the agreed-upon Prices", "fix list price", and "Express delegation".
They argue that collusion through delegation counts as price fixing. They argue colluding to set list prices even when there isn't a price floor is price fixing. They argue that replacing the delegation with an algorithm is still price fixing. Most of their arguments are based on already settled cases.
I vent my frustration to a few agents about the yearly rate increase insanity and they all shrug, give their non-empathetic "I understand" telephone script and blame it on the "system" calculating the prices and make some useless excuse about inflation.
I've got a clean driving record, a fully paid-off cheap vehicle, in a reasonably responsible age bracket, and the cost of decent auto insurance these days is essentially another car payment. Within 5 years I'll have paid back the insurance company 60-70% the value of the vehicle. The Gov/FTC needs to take a look at these companies, especially if they're forcing us to hold the insurance to reasonably participate in society.
Once your car is paid off, you can usually drop the collision damage on your own car - but don't be surprised if you are still paying thru the nose.
Curious though: what state are you in, and how much are you paying?
As comparison, we own three cars (2015, 2013 and 2011), for three drivers (youngest is 21) and have pretty decent level of coverage, including coverage for damage to our cars even though they are paid off - and only pay ~$1600/year in total for all three cars/drivers in Mass, which to me seems pretty reasonable.
Massachusetts is a severe outlier in terms of car insurance and your well below the norm. MA averages 1646/person/year vs 3950/person/year in Florida. https://www.bankrate.com/insurance/car/states/#average-car-i...
The significant increases in relatively irreparable high value cars on the road is presumably a driver of increasing insurance rates.
One solution would be to cap liability for damages to other people's cars to the median value of a car on the road. If you own a car worth more than the medium and want/need damage insurance for the full amount, you should take on that cost rather than saddling the public with it.
Great. Socialize healthcare as the current non-single-payor market is forcing all sorts of market distortions in unrelated markets, AND fix the price fixing. Win win win.
ED: adding clarity for the call for socializing healthcare to dampen the massive price distortions in other markets.
However, the numbers are not publicized because they don't want competitors to have that info.
Another fun fact, a lot of people wonder, "Why doesn't an AI startup just disrupt the insurance industry?" It's because the Departments of Insurance have to understand the price formulas. Neural networks are infamously hard to interpret, so we would have to reform regulations before we can use neural nets.
Also insurance requires that the insurer discriminate a good driver from a poor driver. However they should not discriminate against a protected status.
Good luck setting up a system that can only discriminate using some signals and not others.
It is a good mental exercise trying to think of ways to set up a startup that can discriminate without being obvious about it.
I'd like to know that the methodology is understandable and defensable and correctable, and having "an AI startup" disrupt with neural networks isn't going to do that. At best it will just be another excuse used to justify the state of the industry, "the computer said it so it must be right". Reforming regulations so it can be made even less transparent is not the way to go.
Also, things like machine learning for image recognition in claim photos, satellite data, etc. has also been in use for at least the same amount of time.
I believe the Lemonade renters insurance product also does some kind of "AI" claims processing. I wouldn't know what that looks like, my focus when I was in insurance was solely in underwriting.
What do you mean? Pricing is all publically available (sometimes not all the details that feed into the model that create the pricing tables.) You can search SERFF by carrier, by line, by State, and read the actuarial filings.
Most of the time, pricing is refined by looking at prior year(s) losses, and adjusting. You go to the State, explain how much you've been losing, and they review. All that correspondence is public as well.
More than this, it's a fundamental misunderstanding of what AI is and what it can do to ask this sort of question.
Best thing I've seen come on the market was Root, based in Columbus and founded by a former Finance director from Nationwide insurance. It used your cell phone to send telemetry signal to classify your driving behavior.
This needs to stop. We need change.
[1] https://www.wsj.com/finance/insurance-companies-profits-stoc...
Also, not sure your state or credit score but if you’re not in CA you’ll need good credit to get good rates. The only way to change that is government regulation.
Also if you’re getting the same rates from different places, it sounds like you’re being quoted the same company not different companies. If you aren’t going directly to the actual insurance companies website, that’s what’s happening.
That doesn't sound right to me. That would mean only the liability component is increasing in cost, but aren't the percentages being applied across the board?
If that's true, I certainly couldn't find a table on allowable rate ranges when I did some basic research on pricing and what factors influence it. Certainly open to being schooled on how auto insurance works.
State Farm, for example, lost over $14 Billion last year, mostly from their Auto insurance line. Payments related to losses were 95.2% of the premium they collected, resulting in them having an overall -17% profit margin in that Line.
https://www.carriermanagement.com/news/2024/03/01/259296.htm
How is that justified? $50k is $50k.
Thing is, they're not wrong. The cost of accident coverage has gone up, actually way beyond inflation - assume you hit a Tesla and it sits around 9 months until Tesla can be arsed to get spare parts, your insurance will be billed for the damage itself as well as a loaner car for the counterparty. And damage repairs themselves have gotten more expensive as well: what used to be a simple bend that your everyday farmer neighbour could fix with the basic tools in his garage all while being drunk out of his mind isn't even possible with modern cars made from aluminium or carbon-fiber composite, not to mention all the tech like distance sensors that go into modern fenders which has to be replaced and carefully recalibrated.
On top of that come all the issues with regular inflation (e.g. labor cost, real estate rental for shops) and the aftereffects of the covid pandemic and its supply chain shocks (there's still a massive number of car carcasses that couldn't be completed and now get priority in parts delivery).
[1] https://www.carscoops.com/2023/11/tesla-owners-stuck-waiting...
Weren't all those sensors supposed to reduce collisions, your fault or by others'?
The price of a car is trivial compared to the price of a person.
$5M is firmly in umbrella insurance or suing the at fault driver territory.
You know how big-box retail stores will price match products? That's in order to keep tabs on competitors' prices, and to pose a credible threat of starting a price war. Keeping the peace means keeping prices elevated above marginal cost.
Insurance companies rolling out online rate comparison tools has a similar effect.
- the cost of the other person's car
- your healthcare
- the other person's healthcare, including passengers in each car
- damage to other property like buildings and equipment that people drive into
- lost wages if you're too injured to work
- and a lot more.
The cost of a crash can be many times higher than the cost of your car. Of course maybe you only have liability insurance, which frankly is not a great idea and I would recommend getting comprehensive coverage if you can.
That's the more likely reason for similar insurance prices from different providers.
I think the numbers accurately reflect what insurance companies will expect to pay out for claims. It’s partly due to the nature of vehicle design now and partly due to the cost of repair.
We need better rent stabilization laws. Not the ones we have in many big cities that result in perpetually skewed markets and $200/mo rents. But a more comprehensive approach including requiring multi-year lease options, 12-month or greater rent increase notice requirements, and rent increase caps that prevent catastrophic rent hikes but still allow units to align with market rates over longer timeframes.
Unfortunately, people prefer to strawman the entire concept by pretending that the only "rent control" laws that can exist are like those in NY or SF.
You cannot legislate away costs for an in demand product. It can't be done. Put strict rent increase laws in place and all you do is make it so people sit in their apartment for years to lock in that low rent.
Not that I disagree with building more housing, or being more creative with rent control, but the fact that people in rent conrolled areas can afford to stay in one location isn't a bug. There may be other bugs, but that ain't one.
That won't fix anything. People with capital compete with people who have housing needs for the available houses. Increasing number of houses doesn't change this dynamics.
The people in need of housing will get priced out of available houses eventually.
What should be done is taxing housing heavily and progressively so that houses become a shitty asset that costs you more the more you have of it.
People with capital will drop it like hot potato and finally people who just want to live will be able to afford it again.
It's done, and in many places around the world. In NY and SF; in Vienna, the government owns a large proportion of the housing and keeps it affordable (iirc).
This is fixable by taxation or by limiting corporate ownership of homes.
It will have consequences. Some of those consequences might be negative.
But some won’t. It’s a policy choice, economists aren’t priests.
Most societies do that sort of thing on the regular, but people pushing back against rent control rarely want open borders and welfare for non-citizens.
You can always look at countries/cities where your "solution" has been tried and see if rents shifted.
Certainly in my city there are many more houses (infill and suburbs) and rents are not dropping - however we also have high immigration so demand is rising.
Then again, popular cities have huge demand. Increasing supply seems unlikely to fix the underlying issue.
It would help long term if houses were required to be built well.
It would also help if there were incentives to build more housing when the market was notably dysfunctional; as it has been for the past 40+ years.
I’m not sure what model parent thinks will work. Maybe rent control light where price increases are limited but the limit is highish? I can see that working out, limiting increases to 1.5-2X inflation might keep the market fluid and provide some stability to renters without locking new tenants out.
Still, capping increases to something like inflation+2%, and making leases continuous with long termination periods would be entirely sensible fixes.
If the increase is too high, the tenant can push back by moving, or negotiating.
This only works, of course, if you actually have a supply of vacant housing. If there's a housing shortage, no amount of notice is going to fix the rental situation.
And that doesn't seem like a good possibility.
If you require landlords to give 12 months notice of rent increase and cap the year-over-year increase, the outcome is entirely predictable:
Every 12 months, tenants will receive a notice of pending rent increase, and that rent increase will be the maximum allowed by law.
This game has already been tried before. Once you start tying people's hands, the optimal strategy is to become as aggressive with rent increases as the law will allow. The only time you back off is if you have a vacancy you can't fill, but that's unlikely because once a city starts controlling rents heavily (even with your proposed laws) it discourages more construction.
There's basically no difference between strict rent control and a rent control that limits rent increases to X% per year with 12-month notice period. They're the same thing because once you cap something, people feel compelled to chase the cap for fear of getting left behind.
I'd suggest having no maximum increase, and having the landlord be liable for moving costs if the tenant chooses to move and the landlord is not able to re-rent the unit within a short time period at the increased rent price.
That is roughly a 10% increase, way above inflation. Any sort of rent control would have the rent less than the cost of ownership in 2 or 3 years.
I'd guess there's not a lot of demand for these as renters also want the flexibility to move.
In either case we're throwing the whole pricing part of the market away while still pretending we're engaged in capitalism. Unless you dedicate huge amount of resources to the problem you will likely harm more people than you help.
You could compete with the market through publicly owned housing that people of low income can apply for.
You could upset the market by vastly overhauling zoning laws to make them more open and less bureaucratic.
You could increase access to the market by introducing property tax brackets that are based on total property ownership in a county.
You could increase access to housing options by drastically improving high speed transport to new areas that are currently underdeveloped.
If people are being priced out of the market it's because not enough options exist, which in NYC and SFO is a real physical issue, but in most other places it seems like an entirely artificial issue.
There are costs to both moving and to a lack of home stability that are ultimately born by society at large, but that are effectively negative externalities to the actions of landlords.
I keep having to bump my wife's allowance while not getting bacon because it isn't in her budget.
There are probably other things I should comment on first instead, but this usage of “IRL” made me laugh. I grew up with the initialism IRL while chatting online as a small kid so when I emailed a teacher where I accidentally wrote “IRL”, he quipped, “What? As opposed to us meeting ‘in fake life’?”
Now I feel jokingly vindicated against Mr. Teacher as this is the first time I read a government website use IRL. It would seem that algorithms and cyberspace aren’t part of real life to the government, even when it’s about housing price collusion, one of the realest real-life things I can imagine!
I joke that, given enough time, the “English future tense” they teach will be “to be gonna”.
So is the problem the “RENTmaximizer” software and other services that basically gather price information ?
Because if perfect price information is available, and yet there is no competition in the market driving prices down, well, that’s rentier markets for you.
There must be an economics PhD or two in that
From the brief: To participate in the service, landlords must share in “real-time” their “non-public,” “competitively sensitive” data, including actual rents paid, occupancy rates, and records of lease transactions. [Multifamily Compl. ¶¶ 227, 380.] RealPage then feeds “this data into a common algorithm.” [Student Compl. ¶ 5;] [Multifamily Compl. ¶ 380.] The common algorithm uses these common data for a single, common purpose: to generate “forward-looking, unit-specific pricing and supply recommendations” for all participating landlords. [Student Compl. ¶ 5.] To ensure that the landlords abide by these “recommendations,” RealPage puts significant “pressure” on them “to implement RealPage’s prices,” including by requiring clients to submit requests to deviate to the “corporate office” and tracking the “identity of the client’s staff that requested a deviation.” [Multifamily Compl. ¶¶ 17-20, 261-86.] As a result, landlords using RealPage adopt RealPage’s recommendations 80-90% of the time. [Id. ¶ 15.] The complaints allege that RealPage was clear about the purpose of its common pricing scheme: to increase prices above competitive levels through collaboration.
Doesn't sound like the natural ebb and flow of the market to me.
But the other comment says something about coercion. Now that's what price fixing is.
yup, puts them way over the bar here.
But there's a meaningful distinction between posting transactions, and recommending prices for new transactions. A public market does the former, but relies on participants to ultimately set prices. The latter is probably fine too, iff the prices represent some good-faith estimate of a 'fair' market price. However, recommending systematically inflated prices with the intention of raising the price level globally is probably price-fixing on its own, even if there's no coercive element.
If I were to have a rental property and a management company for it to be hands off, I’d probably want to defer rent setting to the people that understand that local rental market. Both parties have aligned incentives - they want to maximize rent. I guess the government just wants the low-information party to set the pricing? Are there any near-monopoly property management companies in any major metro in the US? Seems like they’re a dime a dozen with lots of competition — doesn’t seems very anti-trust-worthy to me, but what do I know?
If 60% of a city's major property companies sign on with RealPage and *also* agree that they will not undercut the prices RealPage chooses (eliminating economic competition between the property companies), that's not just being a high information party, it's collusion.
The problem is that housing in major cities has a relatively fixed supply, so the colluding landlords know that even if a competitor undercuts them eventually they will simply fill their units and cease to be competition for new renters.
From a ProPublica piece [1] about it, for example:
> In one neighborhood in Seattle, ProPublica found, 70% of apartments were overseen by just 10 property managers, every single one of which used pricing software sold by RealPage.
[1] https://www.propublica.org/article/yieldstar-rent-increase-r...
The collusion is the agreement to adhere to the pricing set by a central pricing authority, not basing your prices off shared information or recommendations. This makes a lot of sense now.
Edit: Well maybe it wasn't missing, but I missed it in any case. Cheers.
Price fixing is a defined crime. So if your agreement is to fix prices between competitors in secret then you are "colluding."
The extension here is that if your agreement is to use similar pricing information sources, property availability lists, or algorithmic components, that this is a form of price fixing, and is thus also illegal, and so you "colluded" by forming this agreement.
The FTC's position is that the agreement itself is illegal. They additionally suggest that even if some of the competitors sometimes "cheat" on the agreement, that doesn't prevent the formation of the agreement itself from being a crime.
This all seems pretty straight forward. They committed a crime. There was no reason to form an agreement. Had they not done that, there would be no case, and no obvious intent. As it is, their intent was clear, to break the law at the public's expense.
This, by the way, is why we have ANSI and IEEE and ITU and all kinds of other "open" standards groups. If you don't do it in secret then much legal burden is immediately lifted from you.
By maximizing individual profit, the software rapidly finds the real fair market value of rentals. It turns out that the fair market value for rentals is much higher than people thought! This should make sense: housing supply is low, housing demand is high, and housing demand is extremely inelastic. It is a situation where egregious profits should be expected! Landlords simply hadn't realized that they could charge more.
There is one seemingly illogical result, which is that some units go vacant despite the huge demand. But unsold goods are a normal part price discovery, and we are not talking about a huge change: occupancy rates only drop a few percent.
It's a brutal result for tenants, but the alternative is incorrect pricing, which has its own negative implications for the whole market.
That's cool and all but the price should be somewhere between the supplier cost and the purchaser value, not pegged at the top.
> real fair market value
Only if there's strong competition.
It is — it just turns out that the purchaser value is quite high!