Can ‘dynamic pricing’ beget cartels?

How long will it be before reservation software companies serving the campground industry take a lesson from apartment leasing agents and adopt a killer algorithm that will send your site-rates soaring?

One of the biggest mysteries in the RV park business, for campground operators and campers alike, is how rates are determined. How much “should” be charged for a water-and-electric RV site? Should a back-in cost less than a pull-through? How much more should be tacked on for a sewer connection? Fuzzy questions all, frequently answered by seat-of-the-pants calculations. But here’s the most difficult one of all: how often, and by how much, should rates be increased?

Historically, the simplest answer to that last question was to increase all rates each season by a similar percentage, explaining to campers that this was the price of “the increased costs of doing business.” Another approach was for campground operators to see what other parks in the area were charging and make corresponding changes, this time explaining to campers that the adjustment was to keep in line with “the market rate.” But that’s old school.

These days a rate sheet is as outdated as paper itself. These days it’s all about “dynamic pricing,” an algorithm-driven way of setting rates that fluctuate with demand–an apparently hands-free approach that absolves campground operators from any responsibility for camper resentment over higher prices. Indeed, with dynamic pricing, higher rates are the fault of the campers themselves. Who, after all, can argue with the iron logic of supply and demand?

Dynamic pricing, however, is just the first drop in the bucket. Algorithms are capable of doing so much more, especially in an industry that has almost entirely computerized its reservation systems–and in the process opened its gates to a potential trojan horse for even higher rates.

What the future might hold is heralded by an astonishing piece of reporting by ProPublica,  an independent, non-profit newsroom that produces investigative journalism in the public interest. A lengthy article by Heather Vogell, published Oct. 15 and headlined “Rent Going Up? One Company’s Algorithm Could Be Why,” establishes that a significant factor behind soaring apartment rents nationwide is a Texas-based company named RealPage and its proprietary algorithm, YieldStar.

Using data acquired from RealPage’s clients, which include some of the largest property managers in the country, YieldStar “suggests” optimum rates for thousands of open rental units each day–rates that often are significantly higher than the market rate, and frequently higher than experienced property managers believe are obtainable. As a former prosecutor in the Justice Department’s antitrust division told Vogell, “machines quickly learn the only way to win is to push prices above competitive levels.”

In addition to having a comprehensive grasp of what rental rates a major segment of the apartment market is charging, RealPage’s algorithm also calculates how demand for apartments responds to price changes–what’s known as price elasticity. As a result, it can call for disrupting the balance of supply and demand by “suggesting” a supply reduction while increasing rates. Property companies soon learn that they can make more profit by operating at a lower occupancy level–levels that “would have made management uncomfortable before,” as a former RealPage executive explained to Vogell.

While leasing agents would typically lower rents to fill vacancies, YieldStar architect Jeffrey Roper lamented that such practices simply undercut the rental industry. “If you have idiots undervaluing, it costs the whole system,” he said. “We said there’s too much empathy going on here. This is one of the reasons we wanted to get pricing off-site” by taking it out of a property manager’s hands and assigning it to an algorithm.

As a result, Vogell’s article notes, YieldStar’s “design and growing reach have raised questions among real estate and legal experts about whether RealPage has birthed a new kind of cartel that allows the nation’s largest landlords to indirectly coordinate pricing, potentially in violation of federal law.”

What’s intriguing about the YieldStar algorithm is that it seemingly does an end-run around anti-trust considerations, which come into play when industry competitors collude on prices. OPEC is the poster-child example, with major oil producers meeting to set production quotas and pricing targets. RealPage, however, is a third party–its competitors are not apartment mangers but other software providers. And YieldStar does not set rental rates, it simply suggests rates that leasing agents are free to accept or ignore–all of which complicates antitrust considerations and may explain why RealPage has gone unchallenged by the Federal Trade Commission or the Justice Department.

Given all that, it’s not a stretch to think that something similar could be coming to the historically tech-resistant RV park and campground industry. Not only have reservation systems achieved near-universal computerization, but the fierce competition among reservation software companies is rapidly winnowing the ranks.

CampSpot already has carved out a dominant niche, claiming it serves more than 1,800 private parks in North America (there are approximately 12,000 private campgrounds in the U.S.) comprising approximately 200,000 sites. CampLife, Astra, Digital Rez and a dozen others are baying at its heels, all holding out the promise of increasing revenues for their lucky clients. But what many people don’t realize is that all those companies are aggregating the data they receive from their numerous unrelated clients, creating massive data bases that can be useful in all sorts of ways–including the way RealPage has developed.

Reservation software companies were the primary proponents of dynamic pricing, eventually overcoming the entrenched opposition of campground owners who worried about the effect it would have on long-time customers and repeat business. These days, however, such notions of business-to-customer loyalty seem almost laughably quaint, and all the more so with the industry’s increased corporatization. With that “empathy” hurdle now overcome, further monetization of reservation data will face increasingly less resistance.

Don’t be surprised, in other words, if at some time in the murky future the rates at your favorite campground start increasing more than they already have. The invisible hand of the marketplace has a few more tricks up its invisible sleeve.

Most recent posts

Author: Andy Zipser

A former newspaper reporter who worked at a variety of newspapers, from small community weeklies to The Wall Street Journal, I finished my "normal" work life as the editor of The Guild Reporter, official publication of the union representing newspaper workers. On retiring, I and my wife bought a campground in the Shenandoah Valley and--with the help of our two daughters and their husbands--operated it for eight years, first as a KOA franchisee and then as an independent family-owned RV park. We sold the campground in May, 2021, and live in Staunton, Virginia, a short walk from our grandsons' home.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: