Antitrust regulations, market information and apartment rentals

Some government responses to post-pandemic inflation have been frankly demagogic. Blaming inflation on massive and newfound corporate “greed”, as is often done, is perhaps the stupidest thing ever. When did so many corporations suddenly become “greedy”? Were corporations previously apparently altruistic? Doesn’t every widget buyer try to buy at the lowest price and doesn’t every seller try to sell at the highest price? Sellers are no more “greedy” than buyers.

A recent attempt to explain inflation in one industry, the rental housing industry, turns out to be equally baseless. However, this is less obvious because it has superficial support in law. Between March 2020 and July 2023, the national average monthly rent increased from $1,614 to $2,038, an average annual increase of approximately 7%. The market explanation for such increases is insufficient supply in the post-COVID housing market, coupled with strong demand from millennials and Gen Z adults who have found that renting is cheaper than owning in all fifty major metropolitan areas. USA (see April 2024 Bankrate research). However, during President Joseph Biden’s 2024 State of the Union address, the president offered a different explanation for the rent increases: the sudden cartelization of landlords. The President announced: “(We) are cracking down on large property owners who violate antitrust laws by fixing prices and increasing rents.”

According to the President, the Department of Justice is investigating software such as The real site, which property managers purchase to recommend rental rates for their multifamily properties. Using a proprietary algorithm, The real site and competitive companies analyze data points that describe current market conditions. As a result, we receive a proposal for the optimal rental price. The property owner can of course ask for a higher price than proposed (if, say, she thinks her building has a particular locational advantage that the software doesn’t capture) or accept less (if, say, she wants a quick rent and a very good potential tenant comes along). . And of course, no prospective tenant is legally obliged to accept a landlord’s requested rent, any more than he is obliged to pay the MSRP for a car.

Justice’s investigation was complemented by Senator Ron Wyden (R-Oregon), who presented Prevention of Algorithmic Facilitation of Housing Cartels Act to prevent owners from purchasing market analysis software. (Senator Widen’s eight co-sponsors, all Democrats, are Bernie Sanders (Vt.), Amy Klobuchar (Mich.), Richard Blumenthal (Conn.), Peter Welch (Vt.), Mazie Hirono (Wil.), Laphonza Butler (Calif.), Jeff Merkley (Ore.), Tina Smith (Minnes.), and Martin Heinrich (N.M.). The substantive portion of the bill states that “It is unlawful for an owner of rental property… to subscribe to, contract with, or otherwise contract with a coordinator.” exchange anything of value in exchange for the coordinator’s services, and such action would be considered a per se violation of the Sherman Act.” So far so good – this provision itself gives the impression that price coordination between owners is what is prohibited (which it already is). is and should be). However, in the first part of the Act, a “coordinator” is defined as “any person operating a software or data analysis service that performs a coordinating function for any owner of a rental property, including the owner of a rental property performing a coordinating function for his own use” The cumulative effect of these laws is to make it illegal to sell data analytics to rental property owners.

As for Senator Wyden, the AI ​​genie probably can’t (and definitely shouldn’t) be put back in the bottle. It is ubiquitous. Are you a used car dealer? You can subscribe AutoTrader Or CarGurus, among other things – all of which will analyze sales by location, model and condition to calculate the optimal selling price for the vehicles in your inventory. Other industries offer similar applications. Perfect price allows car rental companies to set dynamic prices so they don’t run out of cars during sporting events, but also don’t waste too many cars during work breaks. Price laboratories does the same thing with hotel rooms. Wise Athena is consumer goods software that helps sellers set product prices and make promotional decisions (special sales). The government itself uses exactly the same intelligence (See GoCarma and other software) when setting higher prices on their motorways with a view to optimal use of toll lanes. Set the toll too high and the lanes will remain empty. Set them too low and they too will become crowded. In all of these cases, software that provides accurate market information should be praised, not banned. Why shouldn’t owners be able to use this information?

The Senate bill apparently assumes that the creation and sale of market information is the equivalent of a cartel. But as Florida International University law school professor Ediberto Roman noted, “that’s not how antitrust law works. The collection and prediction of data does not violate any regulations.” As long as pricing decisions are made individually and not on the basis of a collective agreement, there is and should not be any legal risk.

Indeed, knowing the current state of the market makes markets more efficient and allows for the maximization of consumer surplus. CNN published Goldman Sachs estimates that the widespread use of “generative artificial intelligence” (the name for this type of software) will likely increase global GDP by almost $7 trillion and productivity growth by a full 1.5% over the next 10 years. Market information that would take weeks for a landlord to produce (at a low confidence level) can now be made available in minutes with a very high confidence level, which actually lowers costs and helps reduce inflation. And keeping rentals (neither vacant because the price is too high, nor too scarce because the price is too low) reduces social and economic friction.

More and more accurate information is a good thing. Preventing its sale is a Luddite strategy that is and must remain permitted by our antitrust laws.