At The Money: Is Technology Price Gouging Consumers?

Lindsay Owens (0:02)

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Barry Ritholtz (0:26)

The war in Iran, tariffs, higher interest rates, lots of things are driving prices higher. But what about Algos and AI and other technologies we use every day? Might they also be sending prices higher?

To help us unpack all of this and what it means for your wallet, let's bring in Lindsay Owens. She is CEO of the Groundwork Collaborative, an economic think tank in DC, and former economic policy advisor to Senator Elizabeth Warren. She is also the author of a brand new bestseller, Gouged, The End of a Fair Price and What That Means for Your Wallet.

So let's start with the basic theme of the book. Hey, price gouging isn't anything. No, it's been going on for forever. But the technology that allows faster, more subtle and more hidden price gouging to take place is what's new. How has technology made fair prices and competition almost obsolete?

Lindsay Owens (1:35)

Yeah. Well, thanks for having me. This is a great question to start with. Look, of course, the impulse to make a buck is not new. It's age old. What's new are the technologies at companies disposal.

But it's also the case that pricing used to be pretty straightforward. You figure out how much it costs to make the item. You add your profit margin on top. You put a sticker on it. You set it on the shelf. You forget it.

Not anymore. Today, pricing is a highly engineered science. Companies hire armies of pricing consultants. They hire physicists. They acquire AI companies all to help them get better at squeezing you and reaching further into your wallet. And so the book really examines a whole host of ways that new technologies have supercharged older corporate tricks.

Barry Ritholtz (2:29)

So everybody experienced that inflation moment during the pandemic. You couldn't get bleach or toilet paper and all these things went up in price.

I'm curious when you had that aha moment where, hey, this is more than just companies raising prices, something in the marketplace has fundamentally changed.

Lindsay Owens (2:51)

Yeah, look, I wasn't alive during the last period of high inflation. We just lived through the first period of inflation in 50 years.

So this was a new experience for me as a human, but also as someone who thinks and studies economic policy.

And I wanted to understand how businesses were navigating inflation. So I listened in on their earnings calls with their investors. And what I was surprised to hear is companies were quite bullish on their ability to navigate inflation. They felt like they were going to be able to pass along their rising costs and even go for more in some cases. But as I started digging into that research more deeply over 2021, 2022, and even into 2023, something else started to stick out to me as well. The way in which companies were describing their pricing techniques had changed. They were talking about their new price optimization and revenue management systems, their new yield management systems. They were talking about new technologies, dynamic pricing and electronic shelf labels in the grocery store at the drive-through line. And I started to think, hmm, there's really something here. This isn't just high prices. This is a shift in the infrastructure and the sort of mechanisms of pricing. And I want to learn more. And that's really what got me going down the rabbit hole that ended up as Gouged, my new book.

Barry Ritholtz (4:20)

So one of the things in the book that I found outrageous, although I bet a lot of us found it outrageous if we followed the story when it was breaking, was the YieldStar algorithm. That is a company named RealPage that effectively engaged in what turned out to be price collusion. The software allowed coordination from all these supposedly competitive landlords and ultimately created a floor, no pun intended, for rents, a hard floor that nobody could lower rents below, stopping competition.

Tell us about RealPage.

Lindsay Owens (4:59)

Yeah, so RealPage is super interesting because what it represents is sort of an exponential shift in what's possible for price fixing and collusion. Look, if you wanted to collude in the olden days, you would need to gather up all your competitors, get together in a hotel room or a conference room, you know, pour some scotch and hatch a deal to keep prices high, align prices, and you know, you need a little bit of trust. You got to make sure one of you isn't going to defect, right?

And sort of undercut all of the rest. And everyone needs to lock arms and hike prices together. Well, that requires a lot of coordination. It's probably only possible in industries that only have a few major players. Well, today, thanks to algorithms, even in industries with many players, like the residential real estate market, where there are, you know, even in any given city, thousands of landlords, thousands of different types of units, thousands of buildings, you know, it would have been hard to put together a price fixing scheme. But now, there's software for that. And landlords can join in on what could amount to a price fixing conspiracy, you know, with the tap of their iPhone. And YieldStar, the revenue management software that RealPage acquired, allows landlords to share competitively sensitive information about floor plans and amenities and price points. But it also spits out recommended rents. Now, of course, landlords don't have to take those recommendations.