Company that makes rent-setting software for landlords sued for collusion

RealPage worked with some of the nation’s largest landlords to raise rents, says lawsuit.

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[JPMeyer]

This one will definitely end up going to the California Supreme Court. I doubt that it becomes a federal case though; if all of the landlords' properties are in Sacramento (as implied in the article), then interstate commerce isn't involved.

IMHO, it is collusion and should be against the law. Whether or not it will be found to be collusion and against the law is a toss-up at this point, given the quality of some of the judges on the bench.

The article states that this suit was filed the US District Court in San Diego and makes claims under federal antitrust laws, so I doubt that this will end up in the CA Supreme Ct!

The issue of whether rent rate collusion impacts interstate commerce (and thus implicates a Sherman Act per se price fixing claim) is an interesting one. There certainly ARE rental markets that directly involve interstate commerce (NY/NJ, Philadelphia and Chicago come to mind), but the choice to file the suit in San Diego is a bit perplexing, from this viewpoint.

The line between price fixing and information sharing has always been difficult to navigate. This one certainly has many attributes of classic price fixing but without the explicit agreement to follow the algorithm's recommendations. I'm going to have to read the complaint to see how the smart folks who drafted the complaint propose to convince a judge to let this case move forward. It will certainly be hard fought from the defendants' perspective!

 

[JPMeyer]

Once again, I should have read the complaint before posting my reply to JohnDeL above! It appears that there actually IS an explicit agreement to follow the algorithm's pricing recommendations. At least if the complaint is correct:

"If there is a disagreement between the participating Lessor and the RealPage Pricing Advisor, the dispute is often elevated to the Lessor’s management for resolution, and specific reasons justifying a departure from RealPage’s pricing level are usually required. But RealPage emphasizes the need for discipline among participating Lessors and urges them that for its coordinated algorithmic pricing to be the most successful in increasing rents, participating Lessors must adopt RealPage’s pricing at least 80% of the time. "

Also, the firm representing the plaintiff's has some heavyweight antitrust/economics (incl TWO PhDs!) lawyers on board. I think that I'll buy some popcorn; this one should be fun to watch!

 

[JPMeyer]

Just having the software wont be enough proof for court. It will have to be shown that they did use it to cartel and not compete.

Ah, so they'll play the "prove our state of mind" card in court.

Based on reading the complaint linked in the article, it sounds to me like the defendants did a really great job of proving their state of mind in their own words. The complaint is chock full of quotes from marketing and training materials of the software vendor and comments from landlords. The facts that 1) the software was designed to allow landlords to increase prices more than otherwise; 2) that it was successful in achieving that result and 3) that the system included compliance mechanisms intended to assure that almost all landlords followed the pricing recommendations are quite well established in the complaint. I'm sure that the defendants will hire very good lawyers who will throw lots of FUD around, but I think that the complaint states a very sound claim and backs it up with more than adequate (for a complaint) evidence. I think that this complaint was drafted with surviving a motion to dismiss in mind with the idea that discovery will turn up even more smoking guns.

 

[JPMeyer]

In a whole lot of industries, there is a sort of "soft cartel" anyhow. I mean, I do hope they bust this app and the landlords using it, but. . .

In most industries, there is at the minimum, all participants tracking the pricing of "the market" and raising prices accordingly.

If they were only using public pricing information there would be little question as to the legality. There might be a small crack in the door with regard to keeping units off the market when the software believes there to be an oversupply, but it's a hard argument to make.

By making use of internal client-specific data as to actual rents being charged, though, there is a strong argument that illegal collusion is occurring.

This has already been hashed out with regard to airlines. They tried using their GDSes in a similar way and got spanked for it decades ago. What they do now is use public pricing signals. It's still, in some sense, collusion, but it's not illegal because they do it in public and aren't making backroom agreements with each other. Everybody who cares to look can see exactly what they're doing.

One airline thinks prices should go up, so they increase their published fares. If the rest of the market agrees, they quickly follow suit. If nobody else does, the original airline reverts the change, usually within a few minutes. It's the normal means of price discovery in a free market, just sped up.

According to the complaint, an airline exec involved in pricing decisions when the airlines got spanked as you describe is behind this rental pricing software. I thought that was a very nice touch in a well crafted complaint. In addition, this plan seems to go much further than just price signaling by actually urging the landlords to turn over price setting to the software, with "compliance" mechanisms in place when landlords stray from the chosen path. This seems pretty bold. I wonder how much legal advice this group of defendants sought or whether they have some magic bullet defense.

 

[JPMeyer]

It's not just the prices. The article mentions staggering lease renewals. I rented from greystar a few years ago and they initially gave me a 11 month lease, which seemed like an odd unit of time to pick (but where happy to renew). I assumed they wanted to avoid rental protections for longer term leases but after reading this they probebrly wanted to stagger the start/end dates to artificialy drive the supply/demand curve.

They are not doing that to affect supply/demand. IF thats what they wanted to do then they would just simply not list it. These uneven lease terms are to limit how long a unit is vacant. EG: they dont want the unit vacated in DEC because it will sit until spring. So they have the lease term end in March (or later) when more people are looking to move.

The complaint states:
55. One Lessor explained that, using RealPage, Lessors are “now able to stagger lease expirations throughout the month, effectively cutting down on frictional vacancy loss as well as concessions” on price. That Lessor continued that by staggering lease renewals, Lessors have “leveled the lease expirations throughout the year to better match the historical demand for each community, thus positioning us [Lessors] for even higher rent growth.”

That sure sounds like the landlords were using the software to manage supply/demand. These plaintiff lawyers really did their homework and sprinkled the complaint with lots of quotes like that one that support the claims. I'm sure that the defendants will tell a different story very well, but it is hard to dismiss the allegations of this complaint offhand.

 

[JPMeyer]

The complaint alleges that the defendants manage more than 16 million rental units. That caused me to question how big the entire market is. This site: https://www.statista.com/statistics/104 ... homes-usa/ claims that as of October 2021 there were 37.75 million MDU rental units in the US. That would mean that RealPage has more than 42% of the total MDU units under their "control". It has been a long time since law school, but that would seem to me to be a big enough share to convince a court that the alleged actions had an actual impact on pricing.