Collusion by Code: The DOJ’s Case Against RealPage’s Pricing Algorithm

The Department of Justice (“DOJ”) recently filed a lawsuit against RealPage Inc. (“RealPage”), a real estate software company, alleging that the company’s algorithmic pricing software violated antitrust laws. (Press Release, U.S. Department of Justice). The DOJ brought the lawsuit under the Sherman Antitrust Act, the “first Federal act that outlawed monopolistic business practices” and prohibited activities restricting competition in the marketplace. (Sherman Antitrust Act, National Archives). Attorney General Merrick Garland stated, “[l[andlords colluding through mathematical algorithms may be new, but it violates the same bedrock principle of a free market fostering competition.” (Jennifer Ludden, NPR). This post explores RealPage’s background, discusses the DOJ’s and RealPage’s arguments for and against the suit, and examines the possible implications for algorithm-driven businesses.

RealPage, a property management platform, developed its YieldStar and AI Revenue Management software to help property owners manage rental pricing. (Heather Vogell, ProPublica). These tools use data from competitors to provide pricing recommendations, including nonpublic information such as rent prices, lease terms, and future occupancy rates. Id. RealPage’s algorithm collects data from landlords using its software, aggregating details from millions of rental units. Id. This data allows landlords to set prices based on what their competitors charge, causing rental prices to rise uniformly rather than encouraging competition. Id. RealPage’s marketing claims that its software helps ensure landlords “‘move in unison versus against each other.’” (U.S. v. RealPage, Complaint).

Jeffrey Roper, a key architect of YieldStar, had previous antitrust experience with price-setting software at Alaska Airlines. (Heather Vogell, ProPublica). After RealPage hired him in 2004, he gathered data and developed the software, but leasing staff initially resisted using the software and raising rents. Id. Roper noted that RealPage wanted to remove pricing decisions from staff due to “too much empathy.” Id. After a decade of implementing YieldStar, RealPage acquired its rival software, Lease Rent Options, in 2017. Id. The DOJ initially scrutinized the merger because it believed it could substantially harm competition; however, the DOJ allowed the merger to proceed. Id. The merger resulted in RealPage acquiring its only significant competitor. Id.

In its suit, the DOJ alleges RealPage violates both Section 1 and 2 of the Sherman Act. (Press Release, U.S. Department of Justice). Under Section 1, any agreements that unreasonably restrain competition are unlawful. (Sterling Miller, Thomson Reuters). Agreements are categorized as either vertical or horizontal. (Sofia Arguello & Anthony Baker, Winston & Strawn). Vertical agreements are “arrangements between firms at different levels of a single distribution chain.” (Norman A. Armstrong, Jr., et. al., King & Spalding). Vertical arrangements directly involving prices commonly come under antitrust scrutiny because they “may result in products being sold to consumers at supra-competitive prices–that is, above the prices naturally dictated by market forces.” Id. All vertical agreements are analyzed under the rule of reason. Id. The rule of reason requires evaluating all aspects of an arrangement to determine if it unreasonably restrains competition. Id. It considers “details about the business at issue, market conditions, and the arrangement’s history, nature, and economic impact, [and] any procompetitive justifications” as well as “whether there is a less restrictive alternative.” Id. The DOJ alleges Section 1 was violated (1) by “unlawfully sharing information for use in competitors’ pricing” and (2) “through vertical agreements with landlords to align pricing.” (U.S. v. RealPage, Complaint). The DOJ argues RealPage violates Section 1 by engaging in an unlawful agreement with landlords to share and exploit competitively sensitive data through its pricing software. Id. The DOJ further argues that RealPage encourages landlords to share their data with each other to eliminate competition. Id. RealPage wants landlords to “‘avoid the race to the bottom in down markets.’” Id. RealPage itself acknowledges that among landlords, “‘there is a greater good in everybody succeeding versus essentially trying to compete against one another in a way that actually keeps the entire industry down.’” Id.

The DOJ’s Section 2 claims allege violations through either (1) monopolizing the commercial revenue management software market or (2) attempting to monopolize it. Id. U.S. courts have interpreted Section 2 to require: “(a) the possession of monopoly power in the relevant market; and (b) the willful acquisition or maintenance of that monopoly power.” (Sterling Miller, Thomson Reuters). The DOJ argues that RealPage acquired and maintained monopoly power in the commercial revenue management software market through exclusionary conduct. (U.S. v. RealPage, Complaint). The DOJ highlighted that RealPage holds at least 80% of this market, with its closest competitor having only around a 12% share, leading to a monopoly that harms renters by inflating rental prices. Id. Further, the DOJ argues that RealPage’s exclusionary practices have obstructed competition and cemented its control over the market. Id. The complaint alleges that RealPage’s practices are anticompetitive and lack a procompetitive justification, further demonstrating its unlawful monopolization of the market. Id.

In response to the suit, RealPage argued that the software simply increases efficiency and provides valuable data-driven insights to landlords. (Kelly Noll, Benesch Law). RealPage argues that the algorithm reflects market conditions more accurately than landlords could manage on their own. Id. By optimizing prices based on real-time data, RealPage touts that it allows landlords to maximize their revenue while keeping vacancy rates low.  (Heather Vogell, ProPublica). RealPage argues that its software improves transparency by providing landlords with more accurate data, which benefits both them and renters by ensuring fair market prices. (Alanna Richer & R.J. Rico, AP News). Some critics of the suit argue that the algorithms are “only functionally capable of optimizing one property at a time” which doesn’t enable price-fixing. Id. Additionally, landlords still make the final decision on whether to follow RealPage’s recommendations. (Jennifer Ludden, NPR). The algorithm may suggest a price, but landlords retain control over their pricing strategies. Id. However, the DOJ argues that ignoring the suggested price is not so simple. “Landlords are encouraged to configure the product to automatically accept the RealPage recommendations … if a property manager doesn’t want to accept the recommendation, they have to put in an explanation.” Id. While RealPage defends its software as a tool for efficiency and data-driven decision making, critics raise concerns about the broader implications of its algorithms.

A DOJ victory could force RealPage to drastically alter how it operates, limiting landlords’ ability to coordinate pricing. In the wake of the suit, some firms have already started to pivot away from utilizing RealPage’s software to instead rely on information that can easily be found by anyone on the Internet. (Jarred Schenke, BISNOW). A change in RealPage’s operations could return more competitive pricing to the rental market, which would benefit renters. However, it could also reduce efficiency for landlords, who have come to rely on RealPage’s algorithms to navigate complex market dynamics. (Heather Vogell, ProPublica). On a larger scale, the lawsuit emphasizes the growing concern over how algorithms impact everyday life, particularly in markets where consumers are vulnerable to price manipulation. (Kelly Noll, Benesch Law). The outcome will likely influence future litigation involving algorithm-driven businesses, making it a landmark case in the regulation of tech-based pricing solutions.