Rent Price Fixing by Algorithm is Still Price Fixing

The FTC says landlords and property managers can’t collude on rental pricing because rent pricing fixing by algorithm is still price fixing

FTC: ‘Landlords and property managers can’t collude on rental pricing’

The Federal Trade Commission (FTC) and the U.S. Department of Justice have filed a joint legal brief saying price fixing by algorithm is still price fixing, according to a release.

“Landlords and property managers can’t collude on rental pricing. Using new technology to do it doesn’t change that antitrust fundamental. Regardless of the industry you’re in, if your business uses an algorithm to determine prices, a brief filed by the FTC and the Department of Justice offers a helpful guideline for antitrust compliance: Your algorithm can’t do anything that would be illegal if done by a real person,” write Hannah Garden-Monheit and Ken Merber in the FTC release in the business blog.

The legal brief highlights key aspects of competition law important for businesses in every industry:

  1. You can’t use an algorithm to evade the law banning price-fixing agreements, and
  2. An agreement to use shared pricing recommendations, lists, calculations, or algorithms can still be unlawful even where co-conspirators retain some pricing discretion or cheat on the agreement.

The FTC says in the release that “landlords increasingly use algorithms to determine their prices, with landlords reportedly using software like ‘RENTMaximizer’ and similar products to determine rents for tens of millions of apartments across the country.

“Efforts to fight collusion are even more critical given private equity-backed consolidation among landlords and property management companies. The considerable leverage these firms already have over their renters is only exacerbated by potential algorithmic price collusion. Algorithms that recommend prices to numerous competing landlords threaten to remove renters’ ability to vote with their feet and comparison-shop for the best apartment deal around.”

Agreeing to use an algorithm is an agreement

The FTC says “In algorithmic collusion, a pricing algorithm combines competitor data and spits out the suggested ‘maximized’ rent for a unit given local conditions. Such software can allow landlords to collude on pricing by using an algorithm – something the law does not allow in real life.

“When you replace once-independent pricing decisions with a shared algorithm, expect trouble. Competitors using a shared human agent to fix prices? Illegal.

“Doing the same thing but with an agreed-upon, shared algorithm? Still illegal. It’s also irrelevant that the algorithm maker isn’t a direct competitor if you and your competitors each agree to use their product knowing the others are doing the same in concert,” the FTC says in the release.

Price deviations don’t immunize conspirators

“Some things in life might require perfection, but price-fixing arrangements aren’t one of them,” the FTC says in the release.

“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. 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.”

The rental housing industry is not alone

The FTC release says that the rental housing industry is not alone in using potentially illegal collusive algorithms.

“The Department of Justice has previously secured a guilty plea related to the use of pricing algorithms to fix prices in online resales, and has an ongoing case against sharing of price-related and other sensitive information among meat-processing competitors. Other private cases have been recently brought against hotels and casinos.

“Technology is a promise. Used correctly, it can make our lives healthier, safer, and more efficient. But its efficiency can also be used by bad actors to crush competition or bilk consumers in novel ways. No matter the tool law violators use, the FTC and the Department of Justice stand vigilant on the side of consumers and competition,” the release says.

Several lawsuits have been filed in different states against RealPage, Inc. and other major residential apartment landlords alleging price-fixing and conspiring to illegally raise rents

In 2023, ProPublica revealed that the RealPage software used algorithms to maximize profits, which experts stated could violate antitrust laws. RealPage has denied the allegations.

Hannah Garden-Monheit is director of the FTC’s Office of Policy Planning and Ken Merber is deputy assistant director of the FTC’s Anticompetitive Practices II Division.