So why don't they use RealPage to jack up Atlanta rents to Los Angeles rent levels if they've cornered the market so much? They're leaving money on the table!
> why don't they use RealPage to jack up Atlanta rents to Los Angeles rent levels if they've cornered the market so much?
They'd make less money [1]. Demand for shelter is close to inelastic, but demand for shelter in Atlanta is not.
Consider the extreme: they mandate rents of $1mm a month. Assuming no government interference, they might land a couple tenants at that price. But the vast majority would balk, thereby leaving them with less profit.
So, you're saying that supply and demand are indeed real with housing.
You can realistically use something like this to maybe bump rents a bit, but you cannot use it to radically alter markets, because it is supply and demand that set market prices.
> you're saying that supply and demand are indeed real with housing
You're correct in one technical sense and wrong in another. (Either way, a good discussion.)
In a competitive market, price and quantity are set by the marginal incremental cost (MIC) and average total cost (components of the supply curve) and the demand curve.
Monopolists, however, ignore the demand curve. Their quantity produced is entirely set by MIC and marginal incremental revenue (MIR) [1]. In a very real sense, the market is no longer about supply and demand--it's about the producer's costs and revenue. (Your technical win is in the MIR being related to the demand curve.)
That doesn't make sense, to obtain the MIR monopolists have to have an implicit consideration of the demand curve. Monopolists can't push the price off the demand curve without pointlessly leaving arbitrage opportunities (or burning money, I suppose) and their revenue depends on price and quantity.
There is a fun thought experiment too if we consider a silly degenerate case, imagine the demand curve has a practically impossible shape and spikes to infinite price at 10 widgets. Any logically sound strategy will tell the monopolist to produce 10 widgets because profit would be infinite. So they can't ignore a demand curve in theory because at a minimum they have to care that it is not a degenerate case.
Monopolists base production on their costs and revenue, not supply and demand. Both "supply" and "demand" are real things—that monopolists ignore if it profits them.
I’m really skeptic of the over simplistic approach of “supply and demand”, as if a wildly inelastic market such as housing has much similarities as a different more elastic one. To use the point on GP, if suddenly a huge landlord decided to jack prices to 1mm a month, I would expect prices to reach a more adequate equilibrium, but not because market mechanisms, but because a lot of things are going to burn, at least politically speaking.
And I that’s also a possible answer your question, on why they are leaving money on the table. To avoid inviting political action.
The thing about monopolies is that the monopolist still has to deal with the demand curve, but they get to set the supply curve. As price goes up, demand goes down; they can't change this. In healthy markets, when supply goes up, prices go down because of competition. Then the price ends up at the intersection of the two curves.
The monopolist doesn't have to follow this rule: they set the price to whatever makes the most profits and leave the price there regardless of fluctuations in housing supply.
I think it's highly unlikely that they're a true monopoly. Housing is just too fragmented a market. There are too many people willing to defect, too many mom and pop shops, and of course you have other cities that people can move to if they just can't handle the prices.
Housing is inelastic enough that they don't need a 100% monopoly to engage in highly monopolistic practices. The article mentions that about 80% of rentals in Atlanta are using algorithmic pricing, and 80-90% of landlords are following their recommendations as is. If the algorithm is laundering their collusion onto 64-72% of the housing market, that's larger than plenty of monopolies that have been broken up in the past.
No. When people say “the price is set by supply and demand,” they mean that the price and quantity of produced goods are set at the intersection of the supply and demand curves. As the linked article in the parent comment shows, a firm with market power will maximize profit by producing goods with a different price and quantity, but they will still use the supply and demand curves to calculate how to maximize profit.
price and quantity are always at the intersection of supply and demand, by definition.
no doubt you can find things to quibble with this too, but it's more accurate to say "price is set by supply and demand" means that the quantity sold is at the "market clearing price". Any other price will leave unsold inventory or unmet demand.
the point being that market manipulations will shift the supply or perhaps the demand curves.
They are using an uneven playing field to find the local profit maxima in rents and vacancies. They have insight into number of vacancies, time-on-market, etc. that individual renters and even landlords/property owners (absent collusion) do not have. They are coordinating this and providing collusion-as-a-service.
Supply and demand still applies even when competition is minimal. It just means the force that’s supposed to keep the price from being set to extract maximum profit isn’t working.
Because even if big, demand is limited by what people can actually pay.
You can price-fix and collude with other big home-owning landlords to milk your buyers, but to a point. Beyond that people just wont rent and move away, downscale as much as they can to smaller appartment, find roomates, or try to move back to their parents.
There's a different limited supply: the paychecks of the potential renters. Can't extract blood from a stone, but they can try to squeeze it right up to the limit. People can only live so far from their jobs before it's no longer worth any savings in rent.
In microeconomic theory, it is still set by demand, except that they are capturing some of the rents, causing “dead weight loss” in the market as a whole (eg higher profits but less overall money changes hands). So there are still limits on the monopolistic behavior, but it is still bad for the buyer
> So there are still limits on the monopolistic behavior, but it is still bad for the buyer
That's basically what I wrote in my original comment. They're far from a real monopoly, but they can probably gouge people a few % points, which isn't great.
