The District of Columbia, where I live, just sued RealPage, a real estate management platform, and 14 DC landlords for violating its antitrust statute. The complaint provides fascinating reading about pricing and software platforms.
(Note: I’m not a lawyer, and I’m not judging the case’s merits per se. I’m commenting on the unique aspects of the RealPage commercial arrangements the DC Attorney General cites in his case.)
Revenue Management Software
Revenue management, or pricing optimization, software is an essential tool for many businesses. PROS, Zilliant, PriceFx, Vendavo, and others offer solutions. There’s nothing inherently anti-competitive about figuring out the price elasticity of your customers or enforcing pricing discipline on your sales staff! Indeed, one could argue it’s almost a fiduciary duty to shareholders!
But RealPage is under scrutiny for its approach to revenue management, which, if you believe the DC lawsuit, makes RealPage look very much like OPEC–that is, a cartel.
Do RealPage Customers Constitute a Cartel?
RealPage has three pricing optimization products, two of which it bought (YieldStar and LRO). These products share a database of pricing and occupancy data collected from RealPage’s clients. Pooling data alone does not make a cartel. Many businesses are built on shared data pools (e.g., D&B, Verisk, Early Warning, the credit bureaus, ZoomInfo, Nielsen, IRI, and others). (To be fair, though, most of these businesses do not share consumer prices.)
What stands out in the complaint, though, if true, is that the RealPage software does not just make recommendations on optimal prices to its customers based on this shared data. The RealPage software also comes with a built-in RealPage-led “enforcement” mechanism to limit customers’ price discounting from the suggested prices. Just like a cartel. (Again, allegedly.) As a result, pricing decisions are alleged to have become centralized rather than made by independent actors in competition with each other.
How Does Price Collusion Allegedly Occur?
The lawsuit describes subtle but ingenious approaches to enforcing price discipline across customers. It’s not that a customer cannot “override” the system’s price recommendations; it can, but the software and services approach makes that hard to do. Here are some quotes from the lawsuit:
RealPage’s message to Participating Landlords (RealPage’s clients) is that they should “let auto accept run” such that the landlords “accept all recommendations.” A RealPage presentation on pushing landlords to enable auto-accept states: “[n]ot an ask of the client. This is a command to the client. It isn’t an optional process.”
Even where Participating Landlords do not enable auto-accept, most landlords cannot, on their own, charge rents other than those generated by RealPage’s RM Software—landlords can only “propose an override.” The landlord must then provide a written business justification for why they wish to depart from the RealPage-generated rent. The landlord is also required to “enter the floorplan rent that [the landlord] is recommending” for the prospective tenant, in order to “submit an override recommendation.”
Proposed overrides often trigger outreach from a RealPage Pricing Advisor—a
RealPage employee charged with directly interacting with clients (sometimes daily) to ensure
landlords impose the RealPage-generated rents. In addition to the content of the communications,
imposing this administrative burden is one way that RealPage works to ensure adoption of the
RealPage-generated prices, as a former RealPage employee explained. If, despite the Pricing
Advisor’s attempts to persuade otherwise, a landlord persists in seeking an override, the Pricing
Advisor can escalate the issue to RealPage management or the landlord’s regional manager.
Regardless, RealPage will not accept landlords’ business justifications for proposed overrides
except in extenuating circumstances such as a natural disaster.
RealPage actively polices Participating Landlords’ compliance to ensure overrides
remain rare. When a new landlord joins Defendants’ rent-setting cartel, RealPage conducts “secret
shops” to “confirm successful adoption” of the software. This process tests whether the landlords’
employees are, in fact, offering only RealPage-generated rents even in the event that a prospective
tenant attempts to negotiate.
According to the complaint, RealPage software is not just recommending prices; RealPage is actively enforcing customer compliance. Elsewhere, the complaint:
- asserts that customer deviations from the suggested prices are analyzed and publicized by RealPage
- makes it clear that customer gatherings are used to openly discuss the need for the collective to adhere to the recommendations and
- quotes a former RealPage employee as saying the company is happy to lose clients who deviate regularly from the pricing suggestions
If true, the entire offering reads like “Collusion-as-a-Service (CaaS),” not just price optimization software!
Why Now? Why DC?
None of this would be a big deal if it were not for the market power the DC Attorney General asserts RealPage has in DC. The attorney general claims that RealPage’s three pricing products set prices for more than 90% of all rental units in large buildings (those with 50 or more units) and over 50% of all multifamily building units in the DC-Arlington-Alexandria MSA. That’s a high enough market share to move the market! Add a housing affordability problem in the region and country, and you have the makings of a hot-button issue.
Right now, we only have the attorney general’s side of the story. It will be fascinating to see how RealPage responds.
Another interesting tidbit in the lawsuit is that RealPage acqui-hired a principal scientist who built a similar revenue management solution for the airline industry. The lawsuit claims the DOJ put the kibosh on that effort in the ’90s. So, the expert set about applying the idea to property management. I want to know where he goes next!