On August 23, 2024, the United States Department of Justice (DOJ), along with several states, filed a complaint against RealPage, Inc. in the Middle District of North Carolina. The complaint alleges that RealPage has engaged in anticompetitive practices by sharing nonpublic, competitively sensitive information among landlords, thereby distorting competition in the rental housing market based in part of RealPage's use of Artificial Intelligence (AI) to analyze (and allegedly set) real estate prices. The case is 1:24-cv-00710.
The complaint includes several causes of action against RealPage, including:
1. Sharing Competitively Sensitive Information: the DOJ alleges that RealPage's revenue management software (YieldStar and AI Revenue Management (AIRM)), collects and uses nonpublic, competitively sensitive data from landlords. This data includes rental prices, lease terms, and future occupancy rates. By pooling this information, RealPage generates pricing recommendations for landlords, which are based on the sensitive data of their competitors. This practice effectively replaces competition with coordination among landlords, leading to higher rental prices and reduced concessions for renters.
2. Distortion of Competitive Pricing: The complaint asserts that RealPage's software is designed to maximize rental prices by leveraging competitors' data. The software encourages landlords to follow each other in raising rents and minimizes price decreases even in down markets. RealPage's tools, such as AIRM and YieldStar, use algorithms to recommend price increases based on competitors' data, thereby distorting the natural competitive process.
3. Guardrails to Maintain High Prices: According to the DOJ, RealPage has implemented several mechanisms within its software to ensure compliance with its pricing recommendations. These include making it easier for landlords to accept recommendations than to decline them, pushing clients to adopt auto-accept settings, and employing pricing advisors to review and influence landlords' pricing decisions. Additionally, the software includes "guardrails" that prevent prices from falling below certain thresholds, further ensuring that rental prices remain high.
4. Coordination Among Landlords: The complaint highlights that the multifamily property industry is characterized by significant cooperation among landlords. RealPage facilitates this coordination through user group meetings where landlords discuss competitively sensitive topics such as pricing strategies and market conditions. This coordination is further reinforced by direct communications between competing landlords and the use of intermediaries to exchange sensitive information.
5. Monopoly in Commercial Revenue Management Software: RealPage is accused of maintaining a monopoly in the commercial revenue management software market by leveraging its vast reservoir of competitively sensitive data. The company controls at least 80% of this market, according to its own estimates. RealPage's exclusionary practices have prevented other software providers from competing on the merits, thereby entrenching its dominant position.
In addition to the above, the complaint highlights RealPage's uses of AI in its business model, which may implicate the use of AI in other industries to analyze various trends and provide recommendations. While the causes of action against RealPage are premised on more than simply RealPage's use of AI, the various activities accused by the DOJ indicate certain behaviors that may received extra scrutiny in the future. Such behaviors include:
1. AI-Driven Pricing Recommendations: Artificial Intelligence plays a central role in RealPage's alleged anticompetitive practices. The AIRM software uses machine learning models trained on nonpublic data from competing landlords to generate pricing recommendations. These models incorporate various factors such as rental applications, executed leases, renewal offers, and future occupancy rates to predict the highest price that the market will bear for a particular unit.
2. Elasticity Estimates: AIRM uses AI to calculate elasticity estimates, which measure how demand for apartments changes in response to price variations. By using competitors' data, AIRM can recommend higher price increases without losing additional leases. This AI-driven approach allows landlords to extract more revenue from renters while reducing the risk of being undercut by competitors.
3. Guardrails and Revenue Protection: AI is also used to implement guardrails within the software that prevent prices from falling below certain levels. For example, the "revenue protection" mode uses AI to reduce the target number of leases rather than lowering prices when demand is low. This ensures that rental prices remain high even in down markets.
4. Market Seasonality and Lease Expiration Management: The AI models in AIRM and YieldStar adjust unit-level pricing based on competitors' future supply data. This feature, known as "market seasonality," helps landlords manage lease expirations to avoid overexposure and maintain pricing power.
Conclusion
The DOJ's complaint against RealPage centers on the company's use of AI-driven revenue management software to share competitively sensitive information among landlords, thereby distorting competition and maintaining a monopoly in the commercial revenue management software market. The role of AI is pivotal in these practices, as it enables RealPage to generate precise pricing recommendations that maximize rental prices while minimizing competitive pressures - a practice which the DOJ alleges violates anittrust laws.
RealPage replaces competition with coordination. It substitutes unity for rivalry. It subverts competition and the competitive process. It does so openly and directly—and American renters are left paying the price.
www.justice.gov/...
