Senators take aim at price-setting algorithms

A new bill is designed to ban the use of non-public information across all industries, including rental housing.

Legislation designed to?prevent companies from using algorithms?in order to collude on prices has come back to the U.S. Senate floor after a previous version failed to pass in the last Congress.?

The new Preventing Algorithmic Collusion Act was introduced by Senator Amy Klobuchar, D-Minn., and co-sponsored by eight other Senate Democrats, including Ron Wyden, D-Ore., who co-wrote the original legislation. Among other provisions, it is intended to close what the author and sponsors call a loophole in current antitrust law that requires proof of an agreement to fix prices, which may not exist when algorithms are used to set prices.?

Under the bill’s definition, sharing non-public information with an algorithm would be presumed to be a price-fixing agreement. The?

?estimated that the use of algorithmic pricing on rents had raised costs for renters by an average of $70 per month, or a total of $3.8 billion in 2023.?

“Price fixing is illegal under our antitrust laws, but the development of price-setting algorithms can exploit loopholes that could be used to unfairly raise prices on everything from rent to rideshares,” said Klobuchar in the release. “My bill will strengthen antitrust law and guarantee needed transparency to prevent companies from using algorithms to fix prices to ensure consumers are able to get the full benefits of competition.”

The bill would also require companies that use algorithms to set prices to disclose that fact, ban companies from using non-public information to train algorithms and direct the Federal Trade Commission to study pricing algorithms’ impact on competition.

Years in the making

Klobuchar’s announcement is the latest in a flurry of legal activity surrounding pricing algorithms since?ProPublica’s 2022 article?about the use of revenue management software in the multifamily housing industry.?

Last month, the Department of Justice, along with the attorneys general of 10 states,?expanded its complaint?against apartment data and software firm RealPage to sue six landlords for “participating in algorithmic pricing schemes that harmed renters,” according to a press release from the DOJ.

The Department of Justice has not taken any further action related to this lawsuit since the start of the Trump administration. All news items published before Jan. 20 on the DOJ website have been archived,?including a press release?about the suit.?

The?Preventing Algorithmic Collusion Act of 2024?was co-authored by Klobuchar and Wyden and introduced on Jan. 30, 2024. A similar bill, Preventing the Algorithmic Facilitation of Rental Housing Cartels Act of 2024, was introduced on the same day by Wyden and Sen. Peter Welch, D-Vt.

Both bills were?read twice and referred?to the Senate Committee on the Judiciary, but no further action was taken, according to Congressional records. Another similar bill was?introduced in the House of Representatives?in June, but did not make it out of committee.?

A number of local jurisdictions have banned the use of revenue management software in the intervening year,?including Philadelphia and San Francisco. States whose assemblies introduced residential revenue management bans that did not pass in 2024 include Illinois, New Hampshire, California, Colorado, Connecticut, New York, Oklahoma and Rhode Island.

FAQs:

1. What is the Preventing Algorithmic Collusion Act?

The Preventing Algorithmic Collusion Act is a proposed legislation designed to close loopholes in antitrust law by preventing companies from using algorithms to engage in price-fixing. It specifically bans the use of non-public information in algorithmic pricing and requires transparency in pricing practices.

2. How do pricing algorithms contribute to price-fixing?

Pricing algorithms analyze market data and competitor pricing to adjust rates automatically. While they can be beneficial, they may also lead to price synchronization, where multiple companies indirectly coordinate pricing without an explicit agreement, resulting in higher costs for consumers.

3. What impact have pricing algorithms had on rental housing?

According to the Biden administration’s Council of Economic Advisers, algorithmic pricing in rental housing has increased rents by an average of $70 per month, amounting to an estimated $3.8 billion in additional costs for renters in 2023. The use of revenue management software has been a key concern in the multifamily housing sector.

4. How will the bill regulate companies using pricing algorithms?

The bill mandates that companies disclose their use of algorithms in pricing decisions, prohibits them from training algorithms using non-public information, and directs the Federal Trade Commission to study the impact of pricing algorithms on market competition.

5. What legal actions have been taken against companies using algorithmic pricing?

The Department of Justice, along with attorneys general from 10 states, recently expanded a lawsuit against RealPage and six landlords for allegedly participating in algorithmic pricing schemes that harmed renters. Additionally, cities like Philadelphia and San Francisco have moved to ban revenue management software in housing.

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Conclusion:

The Preventing Algorithmic Collusion Act marks a significant step toward addressing the growing concerns surrounding algorithm-driven price manipulation. By closing loopholes in antitrust law, this bill aims to safeguard consumers from unfair pricing practices across industries, including rental housing. As policymakers continue to scrutinize the impact of pricing algorithms, businesses and consumers alike must stay informed about potential regulatory changes that could reshape market dynamics. The future of algorithmic pricing will depend on a balance between innovation and ethical compliance, ensuring that technology serves competition rather than undermining it.

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