Tag: ProPublica

A warning shot about RV price fixing

The use of algorithms to set prices of common goods and services, enabled by widespread computerization and data scraping, has seeped into various parts of the economy. Proponents claim such “advances” simply promote greater market efficiency, but that increased “efficiency” benefits just the price-setting side of each transaction—buyers don’t have similar access to data that would enable them to get a more efficient price.

RVers and campers have experienced this problem first-hand. It wasn’t so long ago that RV parks provided rate sheets spelling out how much a particular site would cost on a particular night, but these days that kind of transparent pricing has been supplanted by “dynamic pricing.” How much you’ll be charged for an RV site will depend not just on the day you want to reserve, but on the day—and even time of day—when you make the reservation. Of course, which day will get you the best price is not something a consumer can learn, not least because the “dynamic” piece of that pricing system makes this a moving target. But this system wasn’t designed to benefit customers, anyway.

The industry rationalizes this two-step as simply a response to supply and demand, neglecting to acknowledge a third piece of today’s pricing puzzle: what is the competition charging? Back in pre-algorithmic days that wasn’t a question to be answered easily, since it required obtaining and looking at numerous published rates or contacting other campground operators directly, which not only was a lot of work but also raised all kinds of messy price-fixing and antitrust concerns. But then the campground industry embraced online reservation systems, and as the saying goes, That. Changed. Everything.

Or not. Digitally-driven sales and marketing have made price collusion a lot easier to implement, but the legal (and ethical) considerations have not gone away, making push-back inevitable.

This coming Tuesday, a group of U.S. senators will be introducing legislation, dubbed the Preventing the Algorithmic Facilitation of Rental Housing Cartels Act, to make it illegal for landlords to use algorithms to artificially inflate rents or reduce the supply of housing. The proposed law apparently was catalyzed by an extensive ProPublica investigation, on which I reported in the fall of 2022, that found software used by competing landlords was collecting their proprietary data and feeding it into an algorithm that would “suggest” what rents they should charge. As price setting goes, according to bill sponsor Sen. Ron Wyden of Oregon, that’s “no different from doing it over cigars and whiskey in a private club.”

Although Wyden said he believes existing antitrust laws already apply to what data-compiling companies like RealPage and Yardi are doing, “I want the law to be painfully clear that algorithmic price-fixing of rents is a crime.” Next week’s proposal, therefore, brushes aside industry protestations that it’s only providing information—in its words, making price-fixing collusion “implausible”—by make it illegal for property owners to contract with companies that coordinate rent prices. It also would bar two or more rental owners from coordinating on such information.

The parallels between rental housing algorithms and those now available to RV park owners are stunning, as manifested most widely by Campspot, easily the big dog among campground reservation software providers. The Grand Rapids-based booking agent last year made 3.1 million reservations across more than 2,100 campgrounds, processing in excess of $1.9 billion. But as reported last July, Campspot also introduced a reporting dashboard for its RV park clients that leverages all the reservation data it is constantly accumulating, enabling “individual campground owners to compare their metrics, such as average daily rates, occupancy rates and revenue per available site, with what everyone else is doing—and to make adjustments as desired.”

Campspot’s helpful guidance to campground operators seems to fall a step short of the problem next week’s Senate bill will address among landlords, in that it apparently doesn’t suggest a specific site rate; it just provides all the information for campground owners to reach their own conclusions. Or as Campspot puts it, “With these tools at their fingertips, campgrounds are able to stay ahead of the competition, make confident pricing decisions, and unlock their park’s full potential.” Collusion? Nah—that’s so implausible.

Compared with the massive rental housing industry, RV parks and campgrounds are just an economic blip, and so may readily slip under the radar of antitrust regulators and lawmakers. But to the extent that RV parks increasingly serve as part of the nation’s housing stock, it wouldn’t be surprising to see the introduction of a Preventing the Algorithmic Facilitation of RV Park Cartels Act, enabling the public to make confident pricing decisions when reserving campground sites.

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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.

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