The Flow Report - regulatory risk in algorithmic pricing
Regulatory risk in algorithmic pricing data
Current Federal Trade Commission leadership has used US antitrust law to rein in big tech platforms. This overarching trend is now impacting domestic data collection in a significant way. The FTC has algorithmic pricing and automated decision making (including artificial intelligence) in its crosshairs – as affected sectors of the economy (such as housing) also overlap with the White House’s policy agenda. Private class action litigation against data businesses is on the rise as well. For some data vendors, data quality and even the existence of popular products are now at risk.
The FTC has clearly expressed its view that algo-based pricing can lead to price fixing.
New technology, such as property management software, does not remove conduct from the FTC’s authority to enforce antitrust violations, including price-fixing and other forms of collusion. The FTC has publicly expressed this view while the Department of Justice reportedly weighed potential criminal liability in the case of RealPage, as recently as the first quarter of 2024. Although data buyers often focus on their primary industry regulator in assessing risk to their own operations, buyers should consider antitrust risk factors for data products that they depend on. FTC and DoJ litigation and investigations can diminish or kill of data products with heavy fines and adverse media.
Algorithmic pricing may be particularly problematic where pricing derives from non-public information.
Rental homes and hotel data
Recent litigation involving RealPage and STR, a hotel data affiliate of CoStar, highlights potential risks to consumers in the form of higher prices in the housing market. Claims against RealPage and STR emphasize alleged sharing of non-public pricing and inventory data, such as hotel occupancy rates, on give-to-get models; property owners and managers either agree to share their non-public information, or they cannot access the shared datasets.
Farming and meat processing data
The DoJ (and several states) also sued Agri Stats in September of 2023 for operating an “information exchange,” which allowed competitors in the meat processing industry to share operating and pricing information. This case remains pending in Minnesota District Court after Agri Stat’s motion to dismiss was denied in May 2024.
Antitrust harms are easier to quantify than privacy harms in a data context.
These data sharing agreements have been estimated to raise hotel prices, in the STR litigation for example, by as much as 4.3% overall. Unlike privacy violations, antitrust harms caused by data products are more readily quantified according to established methods of defining a market and measuring prices to assess harm. While this comparison merits much deeper investigation, absent a statutory basis for damages, privacy claims do often fail to convince US courts of cognizable harm. If these antitrust claims are more successful as a result, we can expect the trend to grow.
Other vendors with similar business models
There are many other vendors offering property management software, such as AppFolio, Yardi, and Entrata. The broader category of “give to get” data sharing businesses is extremely common. Vendors like RepVue offer crowd-sourced company sales data, which can create a risk with respect to any confidential company information provided by insiders. Vendor risk inherent in these models varies by the type of information shared and the potential impact on the data subjects (e.g., consumers, companies, etc.).
When sourcing data from vendors deploying algorithmic pricing or aggregating “give to get” data in housing, food supplies, health care, or other potentially sensitive markets, one should exercise caution by assessing the risks described above.
©2024 Glacier Network LLC d/b/a Glacier Risk (“Glacier”). This post has been prepared by Glacier for informational purposes and is not legal, tax, or investment advice. This post is not intended to create, and receipt of it does not constitute, a lawyer-client relationship. This post was written by Don D’Amico without the use of generative AI tools. Don is the Founder & CEO of Glacier, a data risk company providing services to users of external and alternative data. Visit www.glaciernetwork.co to learn more.