The price is wrong! California goes Bob Barker on algorithmic price rigging

When sellers collude through a computer algorithm, that doesn't make it right

California companies that use algorithms to fix the prices of their products and services could now face stiff antitrust penalties if they continue to do so. 

Governor Gavin Newsom signed California Assembly Bill 325 into law on Monday, making it a violation of the state's flagship antitrust law, the Cartwright Act, to use or distribute a common pricing algorithm "as part of a contract, combination in the form of a trust, or conspiracy to restrain trade or commerce." 

Coercive measures to force competitors to adopt price-fixing algorithms are also illegal under the new law, which lowers the bar for plaintiffs to bring an antitrust lawsuit alleging algorithmic price-fixing. Under AB 325, it's enough for a complaint to include allegations making a conspiracy plausible, and plaintiffs no longer have to plead facts ruling out the possibility of independent action.

"Most Californians, and Americans, believe that by playing by the rules, they have an opportunity to run successful businesses and have access to fairly-priced goods and wages," bill author and California Assembly Majority Leader (Democratic) Cecilia Aguiar-Curry said. "With Governor Newsom’s signature, California is making clear we won’t tolerate practices that make life more expensive for our people.”

For those unfamiliar with algorithmic price fixing, it's a practice that allows companies - like big landlords, for example - to use a shared algorithm, often with common data, provided by a company like RealPage, to set prices. AB 325 doesn't ban the use of algorithmic pricing specifically, but does make it illegal for companies to collude to fix prices using such software.

Speaking of RealPage, it was hit with an antitrust lawsuit by the Department of Justice and the Attorneys General of eight states last year, accusing it of doing just that. 

"RealPage sells software to landlords that collects nonpublic information from competing landlords and uses that combined information to make pricing recommendations," the DoJ complaint charged. The DoJ lawsuit was expanded in January to add six corporate landlords to the antitrust case, alleging they all colluded - even indirectly through the use of RealPage's software - to jack up rents around the country. 

The case is ongoing, but several of the landlord defendants have already agreed to settle with the DoJ.  

RealPage has become one of the highest-profile alleged instances of algorithmic price fixing, as it involves alleged coordination among major landlords, but it's not the only one. 

MultiPlan, a company that does similar things in the healthcare space, has also been accused in court of algorithmic price fixing. As in the RealPage case, plaintiffs allege that MultiPlan receives nonpublic pricing data from insurers and uses it to generate algorithmic reimbursement recommendations that suppress payments to providers. 

The American Economic Liberties Project, a nonprofit funded in part by eBay founder Pierre Omidyar that advocates for antitrust laws, celebrated AB 325's signing into law in a press release on Tuesday, calling it a huge step forward in the fight against algorithmic price-rigging.

"Coercive price fixing algorithms raise prices and restrict new investment, and they rob small businesses of their independence, subjecting mom and pop business owners to the control of extractive tech platforms," said AELP senior legal counsel Lee Hepner. "Much of the general frustration people feel as consumers can be traced back to these illegal combinations of corporate power."

Hepner further described AB 325 as a "nation-leading effort" to ensure that software-based market rigging is treated "no different than rigging markets in a smoky back room."

AB 325 isn't the first law in the nation to address algorithmic price rigging, as multiple states have introduced legislation to tackle it, though few have made it into law yet. New York passed its own rule on algorithmic pricing that took effect in July, but it doesn't ban the practice, instead requiring companies to simply disclose when algorithms are used to set prices. Several municipalities have also passed their own laws on the matter. 

There is currently no federal law specifically banning the use of algorithmic price fixing. Federal courts have considered arguments regarding the applicability of the Sherman Antitrust Act to pricing algorithms, but the debate has yet to be concluded. ®