Algorithms have become integral to our technology-driven economy, transforming industries and reshaping markets. While they often enhance efficiency and streamline processes, these same tools can be misused to promote anticompetitive practices like price fixing. In this blog, we examine how algorithms can facilitate price fixing schemes, the broader implications for markets and consumers, and a landmark case that underscores the dangers of digital collusion.
Understanding Price Fixing in the Digital Era
Price fixing occurs when competitors conspire to set prices rather than letting the market dictate them through supply and demand. Traditionally, such schemes required explicit agreements among companies. However, the rise of sophisticated algorithms has blurred the lines. Algorithms can enable companies to coordinate pricing without direct communication, creating what some call "tacit collusion."
How Algorithms Enable Price Fixing
Algorithms analyze massive amounts of market data, including competitor prices, consumer behavior, and market trends. In certain scenarios, they are programmed to adjust prices in response to competitors, creating a domino effect that eliminates competition. While these systems might claim to operate independently, their widespread adoption among competitors can lead to artificially inflated prices, harming consumers.
RealPage: A Case Study in Algorithmic Price Fixing
The Joseph Saveri Law Firm is actively involved in Apartment Rental Software Antitrust Litigation, a class action case highlighting how algorithms can facilitate price fixing. The lawsuit targets RealPage, Inc. and several large property management firms.
RealPage's pricing algorithm allegedly collects and analyzes sensitive data from competitors, recommending rental prices that landlords adopt at an alarmingly high rate. This system has reportedly allowed competing property managers to inflate rents collectively while reducing market competition. By relying on RealPage’s algorithmic recommendations, landlords may have effectively engaged in a coordinated price fixing scheme, violating U.S. antitrust laws.
Our case demonstrates the potential for algorithms to be weaponized against consumers. It also underscores the need for vigilant legal oversight to prevent abuse in the digital economy.
The White House Report: Quantifying the Cost of Algorithmic Price Fixing
A recent report by the White House Council of Economic Advisers (CEA) reveals that algorithmic pricing in the rental market costs renters an average of $70 per month, totaling approximately $3.8 billion in 2023. RealPage's "AI Revenue Management" software, used in nearly 1 in 4 multifamily housing units, plays a key role by enabling landlords to coordinate higher rents.
The report highlights that RealPage discourages landlords from deviating from algorithm-recommended prices, further sustaining inflated rents. Additionally, the anticompetitive effects extend beyond algorithm-using landlords, as others raise rents to align with the market. The true cost to renters is likely even higher.
This analysis reinforces the importance of enforcing antitrust laws to prevent price coordination and reduce housing costs, a critical issue amid the ongoing affordability crisis.
The Broader Implications of Algorithmic Collusion
Algorithmic price fixing has far-reaching implications beyond the rental market. Industries ranging from e-commerce to travel have seen increased reliance on pricing algorithms. Left unchecked, these systems erode consumer trust, inflate costs, and stifle innovation. Regulatory bodies and antitrust enforcers must keep pace with technological advancements to address these challenges.
Protecting Consumers from Digital Collusion
Our firm has a proven track record of tackling complex antitrust cases involving digital markets. By holding companies accountable for anticompetitive practices, the firm seeks to protect consumers and preserve market integrity. Apartment Rental Software Antitrust Litigation is a key example of our commitment to combating algorithmic collusion and ensuring fair competition.
If you believe you have been affected by similar practices or want to learn more about the case, visit our case page.
The Need for Vigilance in a Digital World
As algorithms become integral to business operations, it is essential to remain vigilant about their potential misuse. While they can bring innovation and efficiency, their unchecked use could facilitate price fixing and other anticompetitive behaviors. By understanding these risks and supporting legal efforts to combat abuse, we can help ensure that technology serves consumers rather than exploits them.