Introduction
The RealPage lawsuit highlights a significant issue regarding antitrust laws in the digital age. The U.S. Department of Justice (DOJ) and several state attorneys general have accused RealPage of violating Section 1 of the Sherman Antitrust Act by facilitating a hub-and-spoke conspiracy among landlords. This article explores how RealPage’s actions constitute a violation and compares its services to those of a traditional consultant, and discusses how the efficiency and scalability of algorithmic pricing presents potential pitfalls for providers of consulting services.
Background of the Sherman Antitrust Act
The Sherman Antitrust Act, enacted in 1890, aims to preserve free and unfettered competition as the rule of trade. Section 1 of the Act prohibits any contract, combination, or conspiracy in restraint of trade or commerce among the several states. Historically, this has included various forms of price-fixing, market division, and other anticompetitive practices.
The RealPage Case
RealPage, a provider of revenue management software for rental properties, has been accused of facilitating a hub-and-spoke conspiracy. In this arrangement, RealPage acts as the “hub,” while the landlords using its software are the “spokes.” The DOJ alleges that RealPage’s software collects and shares sensitive pricing information among competing landlords, enabling them to align their rental prices.
Hub-and-Spoke Conspiracy Explained
A hub-and-spoke conspiracy involves a central player (the hub) coordinating actions among several independent actors (the spokes). In the RealPage case, the software’s algorithmic recommendations serve as the coordinating mechanism, allowing landlords to set similar rental prices without direct communication3. This indirect coordination can effectively reduce competition, leading to higher prices for consumers.
RealPage’s Facilitating Practices
RealPage’s software collects detailed, non-public rental data from its clients, including current rental prices, lease terms, and occupancy rates. This data is then processed by RealPage’s algorithm to generate pricing recommendations, which are shared with all participating landlords. The DOJ argues that this practice amounts to an unlawful sharing of competitively sensitive information, facilitating coordinated pricing decisions among landlords.
Comparison to Traditional Consulting
What is the distinction between RealPage’s services and to those of a knowledgeable consultant who advises clients on pricing strategies. Industry consultants typically offer the following services:
- Market Analysis: Consultants analyze market trends, competitor pricing, and economic conditions to provide tailored pricing strategies.
- Benchmarking: They help clients understand how their pricing compares to industry standards and competitors.
- Strategic Recommendations: Based on their analysis, consultants provide strategic advice on pricing adjustments, promotional tactics, and revenue management.
- Periodic Reviews: Consultants often conduct periodic reviews to update their recommendations based on new market data.
The primary difference between traditional consulting services and Realpage’s services is the greater efficiency and scalabilty of the latter.
- RealPage’s algorithm can process vast amounts of data and provide real-time pricing recommendations, far surpassing the capabilities of a human consultant2.
- The software’s ability to simultaneously influence the pricing decisions of numerous landlords across different markets amplifies its impact compared to individual consulting engagements.
- RealPage’s “auto-accept” feature allows landlords to automatically implement the algorithm’s recommendations, further streamlining the process and ensuring uniformity in pricing.
Legal and Economic Implications
The RealPage case underscores the challenges of implementing modern and evolving technologies. Technology-based applications that are analogous to ‘analog’,’ and less efficient practices of the past may provoke legal challenges simply because they are so much better at accomplishing their purposes. While the efficiency and scalability of RealPage’s services offer clear benefits to its clients, it appears that it is precisely that efficiency and scalability that has attracted the attention of the Justice Department and State Attorney Generals. The case highlights a challenge that companies will face as they develop AI capable of processing and disseminating market data.
Conclusion
The RealPage lawsuit is likely to establish a new precedent for antitrust enforcement in the era of big data and algorithms. The court’s decision will help establish the boundary between innovative business practices and anticompetitive behavior.
