The War on Algorithmic Price Fixing Is Here
PLUS: How to take on secret data center deals.
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Last week, the law firm McCarter and English sent out an advisory memo warning senior living and nursing home operators that they need to be on the lookout for new laws and court cases aimed at algorithmic pricing tools. “Build a record showing that your pricing remains independent and that your software can’t serve as the conduit for competitor coordination,” the firm said.
If nursing homes and senior centers are using similar technology to that employed in several industries to set common prices among supposed competitors, then that warning is apt. States and local policymakers, as well as private plaintiffs, are increasingly waging war on the use of opaque algorithms that have become an avenue for good old-fashioned price fixing.
To put it even more succinctly, the war on algorithmic price fixing is here, for real.
The area in which these pricing tools have received the most attention is rental housing, where corporate landlords are allegedly using software platforms — such as RealPage and Yardi — to collude on rental prices.
They accomplish this by sharing data with the platform that is fed into a common algorithm, which then recommends rent prices across the local market, to all the landlords who have signed up for the service. So landlords who are supposed to be competing to fill units are instead coordinating prices together. The algorithms even allegedly tell landlords to leave certain units vacant, creating artificial scarcity with the goal of pushing rents higher.
But what occurs in one industry, I have learned over the years, never stays there. These same price tools are allegedly used by hotels, meatpackers, airlines, frozen french fry distributors, and, apparently, nursing homes and senior living centers to set common prices.
By coordinating those prices across competitors, these tools take what used to be the “smoke filled backroom” commonly associated with price fixing and move it online, where the conspirators don’t actually have to interact with each other to facilitate collusion, because they’re letting the algorithm do it for them. All the participants know that their competitors are using the same tools, and thus won’t undercut them if they follow its recommendations. Hence the law firm’s wording about tools that “serve as the conduit for competitor coordination.”
To be clear, the issue isn’t algorithms per se, but the way in which they facilitate collusion and the formation of what are essentially cartels. One firm using a proprietary algorithm to figure out its own prices could cause problems if it’s discriminatory or otherwise harmful, but it wouldn’t fall afoul of price fixing concerns in the same way. Once a second firm is using the same algorithm, however, collusion becomes almost an inevitability, intended or not.
According to a study done by the Biden administration’s Council on Economic Advisors, the effect of these tools in rental markets was $3.8 billion in higher rent payments in 2023. Multiply that across food, tourism, senior care, and who knows where else, and we’re talking about a lot of money being unnecessarily spent thanks to the use of collusive algorithms.
And policymakers have noticed this is happening, which isn’t surprising in an era in which “affordability” has the political salience it does. New York recently became the first state to adopt a statewide ban on the use of shared algorithms to set rental housing prices, following the adoption of about a dozen local ordinances doing the same, in cities such as San Francisco, Philadelphia, Providence, Minneapolis, and Jersey City.
New Jersey Gov.-elect Mikie Sherrill also campaigned on stopping collusion in rental housing markets, so I wouldn’t be shocked if New Jersey goes next, especially since bills there have already been written and introduced in the state legislature.
But that’s not all. California last month went a step further, outlawing the use of common pricing algorithms across the economy, and making it illegal for one business to coerce another into adopting specific prices. My colleague Lee Hepner explained the specifics here of what could be a truly groundbreaking effort to ensure businesses aren’t bullied by dominant firms into pricing a certain way.
Law firms and trade association publications took notice, sending out a flurry of advisories and articles about these two states — with economies large enough to be their own countries, honestly — leading the way on algorithmic pricing
It’s especially heartening to see legal advice aimed at industries that didn’t come up during legislative debates over these measures, such as the nursing home example above, because it means these laws might be even more impactful than imagined — and also that efforts to root out algorithmic price-fixing tools across the economy are necessary, if industries not on the radar are using them.
There are, of course, other pricing tactics that warrant concern, from abusive dynamic pricing to junk fees to price discrimination to surveillance pricing. No one measure can grapple with the host of ways in which dominant corporations are using their power to unfairly manipulate pricing. But seeing some momentum behind efforts to get algorithmic price fixing off the table is encouraging.
NEW POLICY MEMO ON SECRET DATA CENTER DEALS: I wrote a new brief at the American Economic Liberties Project on how policymakers can rein in secret data center development deals, which have cropped up all over the country. Data centers are becoming an increasingly focal point of our politics, and these common-sense steps can ensure that communities understand the stakes of data center development, and that Big Tech firms can’t hide behind nondisclosure agreements and nonsense assertions of proprietary data to keep vital information away from the public.
Read the policy brief here and coverage of the release at Pluribus News here.
SIMPLY STATED: Here are links to a few stories that caught my eye this week.
Equifax’s monopoly on state employment data means it is poised to profit handsomely from new Medicaid work requirements.
An analysis from economist Michael Hicks shows that data centers create no net new jobs for communities.
The Trump administration confirmed it is killing the Direct File tax-filing program, handing a giant gift to tax prep corporations. (Background on this issue here.)
A proposal to create a film/TV production tax credit in Nevada is likely coming back again.
Lower-league pro soccer stadiums are not going to revitalize cities.
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— Pat Garofalo
How about Casino and/or Ticker-Tape pricing? Shopping online price rinsing in response to interest/demand.