Algorimthic Rental Collusion

Today, the DOJ accused RealPage of facilitating collusion. Among its services, RealPage has developed an algorithm that culls through rental information on 3 million units to make rental rate recommendations.The government alleges this stifles competition because, through its illegal monopoly over rent-setting software, RealPage allows landlords to illegally coordinate price increases. This is the latest in allegations that IT allowing sellers to see each others' prices in a market will reduce competition in that market. Earlier this Summer, I saw a presentation about a similar information sharing platform alleged to facilitate gasoline collusion in Australia.

What has changed with IT is better communication of the market conditions. What has not changed is the underlying market conditions in these industries. The apartment rental business is extremely unconcentrated. For example, there are close to a million units for rent in the DFW metroplex owned by perhaps 10,000 separate entities. As many as 30% could be using RealPage's service and, for the sake of argument, are in lockstep trying to elevate prices above competitive levels. But that means there may be as many as 7,000 apartment owners who could undercut these prices. We know OPEC has trouble maintaining prices with a dozen members, because there are two dozen other oil exporters that can potentially undercut them. When the number of sellers gets much past double digits, there is a huge temptation for any one of them to undercut the others.

Technology that improves information sharing can make markets more efficient. Until about six years ago, even I owned rental property. I wasn't very good at it. One reason was that I did not know how much to charge. Had I been aware of RealPage, I might have been able to increase occupancy rates. In fact, in financial markets, research often finds that quick and transparent information through advances in IT improves market efficiency by making prices better reflect the underlying values of assets.