The Loaded Language of Price-Fixing
What can we learn from clickbait analysis around an important economic theme?
The one downside to putting the newsletter on hiatus for a week is that my noggin doesn’t turn off that easily—so every day “away”, when reading news analysis, I found myself tucking away tabs for future articles.
But I’m also thankful for the opportunity to watch a news cycle unfold without immediately commenting on it, because as everyone else weighs in, sometimes more interesting patterns emerge than might have been possible to see at first.
At the end of August, there was a convergence of news stories and commentary around price-gouging, competitor price-fixing, and government price-fixing.
Price-gouging is a term for setting prices for essential goods and services much higher than their costs, and it has a more negative connotation than its linguistic kin, “surge”, “dynamic”, and “demand/supply shock” pricing. While some argue that dynamic pricing is a critical lever to keep markets running in a crisis (the alternative being that limited stock gets bought up too quickly), price-gouging is also a form of profiteering, and it can happen well outside traditional emergencies (i.e., when product and service scarcity have been introduced to the market through monopolies).
Price-gouging can especially happen when so-called market competitors conspire to share data and pricing norms that allow them to increase their profits at the consumer’s expense. That’s one form of price-fixing. The other is also referred to as “price controls”; these emerge when a government imposes price caps on essential product and service categories, ostensibly to ensure that all citizens have access to what they need in times of crisis. (Although, this policy requires many more supports along the whole supply chain to guarantee product availability in the first place.)
Some recent stories on these themes emerged from legal battles, one of which has been in process for a while. In 2022, Heather Vogell reported for ProPublica on a rent-fixing scheme facilitated by a Texas-based software algorithm; that year, RealPage was hit with its first round of class-action antitrust lawsuits. In late August of this year, the US Department of Justice followed suit, suing RealPage for what it calls an “algorithmic pricing scheme that harms millions of American renters”.
How was this harm being achieved?
As Vogell wrote back in 2022,
“Never before have we seen these numbers,” said Jay Parsons, a vice president of RealPage, as conventiongoers wandered by. Apartment rents had recently shot up by as much as 14.5%, he said in a video touting the company’s services. Turning to his colleague, Parsons asked: What role had the software played?
“I think it’s driving it, quite honestly,” answered Andrew Bowen, another RealPage executive. “As a property manager, very few of us would be willing to actually raise rents double digits within a single month by doing it manually.”
The celebratory remarks were more than swagger. For years, RealPage has sold software that uses data analytics to suggest daily prices for open units. Property managers across the United States have gushed about how the company’s algorithm boosts profits.
“The beauty of YieldStar is that it pushes you to go places that you wouldn’t have gone if you weren’t using it,” said Kortney Balas, director of revenue management at JVM Realty, referring to RealPage’s software in a testimonial video on the company’s website.
The nation’s largest property management firm, Greystar, found that even in one downturn, its buildings using YieldStar “outperformed their markets by 4.8%,” a significant premium above competitors, RealPage said in materials on its website. Greystar uses RealPage’s software to price tens of thousands of apartments.
This open boasting in 2022, about landlord profits made by sharing competition-sensitive housing data, set off a flurry of lawsuits and legislation. The latest federal case is another long-term consequence of that investigation, and it sparked more discussion about the still-serious housing crisis (which we’ll discuss tomorrow).
Then, later in the month, Andy Groff got into hot water in the press for something he wrote as Senior Director for Pricing at the grocery giant Kroger. The Federal Trade Commission had just kicked off its antitrust case to block Kroger from a $25 billion USD merger with Albertsons, on the grounds that this deal would eliminate competition in the grocery industry and negatively affect consumers.
Groff’s emails were used to establish a pattern of behaviour for Kroger, and to illustrate that merging with Albertsons would destroy one of the few remaining guard rails against exploitative pricing. In one of those emails, Groff wrote that “[o]n milk and eggs, retail inflation has been significantly higher than cost inflation”. He also described the company’s competitor-price benchmarks in a way suggesting that Albertsons is one of three key data points in many Kroger pricing decisions.
What’s the implication here?
Essentially, if a company that already admits to pricing products well above cost inflation gets more control over one of the core checks-and-balances used to set its everyday pricing, this can only hurt the consumer in the end.
But many news outlets chose to report on Groff’s comments by focusing on a bigger trend of “open secrets” in essential industries (e.g., housing, food). If Groff felt comfortable talking openly about retail inflation being “significantly higher” in email exchanges, it couldn’t just be a Kroger issue, right? It had to be systemic.
Kevin Thompson, a finance expert and founder and CEO of 9i Capital Group, said Groff’s comments highlight a larger trend in the current economic system.
“We’ve moved away from true capitalism towards an oligarchic structure with less competition and larger players dominating the market,” Thompson told Newsweek.
“This shift, driven by a focus on shareholder interest, has diminished consumer choice and competitive dynamics.”
Executives tend to be incentivized to maximize shareholder wealth by increasing revenue and reducing costs, Thompson said.
“This pricing strategy was likely implemented to maximize profits,” Thompson said. “Other grocers may have taken similar actions, as executive compensation is often tied to stock price performance. Many executives push the boundaries of what’s legally permissible to boost returns.”
And this “big picture” approach to one company’s admission of what some call price-gouging also kept the wind in the sails of a mid-August news cycle involving US Presidential Candidate Kamala Harris, who made an election promise that was both more specific than most up to that point, and also not specific enough.
As Harris spoke during an event in Raleigh, North Carolina on August 16:
We all know that prices went up during the pandemic when the supply chains shut down and failed, but our supply chains have now improved and prices are still too high. A loaf of bread costs 50 percent more today than it did before the pandemic. Ground beef is up almost 50 percent. Many of the big food companies are seeing their highest profits in two decades. And while many grocery chains pass along these savings, others still aren’t.
Look, I know most businesses are creating jobs, contributing to our economy, and playing by the rules, but some are not, and that’s just not right, and we need to take action when that is the case.
As attorney general in California, I went after companies that illegally increased prices, including wholesalers that inflated the price of prescription medication and companies that conspired with competitors to keep prices of electronics high. I won more than $1 billion for consumers. So, believe me, as president, I will go after the bad actors. And I will work to pass the first-ever federal ban on price-gouging on food.My plan will include new penalties for opportunistic companies that exploit crises and break the rules, and we will support smaller food businesses that are trying to play by the rules and get ahead. We will help the food industry become more competitive, because I believe competition is the lifeblood of our economy. More competition means lower prices for you and your families.
I’m loath to cite a newspaper that has been gamifying the US election something fierce (always keep that in mind when reading this “paper of record”), but Jim Tankersley of The New York Times summarized the situation efficiently when he wrote,
Ms. Harris’s campaign has created the space for multiple interpretations, by declining to specify how that ban would work, when it would apply or what behaviors it would prohibit.
In the process, the vice president and her team are discovering the double-edged reality of releasing a policy proposal that is thin on detail: Anyone is free to imagine what those details might be.
And sure enough, over the next three weeks, we’ve been “enjoying” a spate of commentary about Harris’s proposed policy, which has dovetailed nicely into the aforementioned news from two antitrust cases involving similar pricing issues.
Now, much of the news analysis I’ve read is afflicted by a serious case of “everyone else is wrong, while I alone have and always have held the overlooked key to understanding this issue!” This is a wonderful rhetorical move for establishing writers as topical experts, but it also risks estranging everyday readers, many of whom have strong gut feelings about these issues and aren’t happy to be sneered at for having “foolishly” failed to pull off the same data analysis as the author in question.
(If I ever do that, roll up a newspaper and swat me with it, will you?)
It’s important to remember that our outrage sells, though.
Legacy media is unfortunately more often in the business of whipping up general outrage and helplessness, and often sacrifices educational and subject-curious approaches to key policy issues in service to a tone that “sells”.
This can lead everyday readers and consumers to shut down in response to contradictory information. After they’ve just had their fury stirred up by an earlier “take” on a given economic theme, it’s going to take a lot more than a few fancy stats to change their minds about something that they feel to the bone is true.
Those same readers will then feel powerfully vindicated when emails like Andy Groff’s resurface, when reporters like Heather Vogell capture the overt glee of profiteering landlords, or when their current vice president mentions personal examples of fighting price-fixing schemes in medication and electronics.
Take, for instance, a Fortune analysis published this morning, under the headline “Kamala Harris is wrong. American economic history is replete with failed price control policies”. The article includes important numbers for understanding the industry position, and it brings critical history to bear on the question of how price control policy has played out before. But note how the argument is structured:
Kamala Harris insisted that the country needs “the first-ever federal ban on price gouging on food and groceries.” She would set “clear rules of the road to make clear that big corporations can’t unfairly exploit consumers to run up excessive corporate profits on food and groceries.”
While these accusations are vague, they still clearly do not apply to the grocery business. In 2022 when inflation was peaking, the average profit margin for a grocery store was 2.3%. Not only was this profit margin lower than 2021 (2.9%) but it is also well below the average business profit margin between 8 and 9%. Making the exploitation argument even weirder, profit margins fell further to 1.6% in 2023.
While shortages in the wake of the COVID-19 pandemic caused supplier prices to rise at a higher rate than overall inflation, if grocers are exploiting consumers and price gouging, then they are clearly the worst price gougers ever. Grocery retailing is a low-margin, high-volume business. Consumers are neither exploited nor gouged. They can patronize the grocery store of their choice to find tens of thousands of products.
Weird, right? The figures above are not just from Fortune’s analysis (many economists talk about lower profit margins, and how raw-number increases in corporate profit are sometimes used by reporters instead of adjusted-for-inflation increases)—but neither is that tone I highlighted in bold: that utter dismissal of how everyday citizens feel about the economy, based on experiences they’ve had and articles they’ve read.
Here’s another example, from Matt Yglesias, who in 2022 wrote “Greedflation is fake” and who revisited the theme in 2023, then reposted it on Labour Day. In the second piece, he argues for a range of factors coming to bear on current inflation, and criticizes claims of “price-gouging” as a distraction from pursuing real market fixes.
For Yglesias,
What’s actually happening in the United States is that the Federal Reserve has been raising interest rates.
This has reduced asset prices nationally and altered time preference in a way that’s bad specifically for software startups. It’s also created a fair amount of problems in the banking system. If you’re a major shareholder in a medium-sized regional bank, this has not been a good spell for you. But Sirota’s claim that the working class has been “crushed” by “brutal policies” inspired by greedflation doubters doesn’t make any sense. The pace of job growth has slowed down, which is what you would expect with a very low unemployment rate. I’d expect it to continue slowing down. The prime age employment-population ratio is near record highs and overall population growth has become much slower than it was 20 or even 10 years ago, so we’re not going to keep adding jobs rapidly.
Greedflation nonsense just serves as a pointless distraction from what’s actually needed: policy focus on supply-side reforms that allow for productivity growth and real wage gains. Trying to use price controls to prevent excess demand from transforming into rising profits and prices is only going to generate shortages and make it harder to unwind the underlying pathology. We just need to admit what happened here—the architects of ARP deliberately erred on the side of going too big with stimulus and we’re now living with both the upsides and the downsides of that choice.
Did you see that tone again?
Now, there’s a lot to chew over in legacy-media articles about US inflation. News commentary like the above does provide meaningful data and outline a range of other factors critical for setting good policy. Moreover, lay-persons must always remember that our own armchair analysis is rarely going to reach every nook and cranny of a problem; complex systems can rarely be fixed by just tackling one corner of the issue.
But also, no, it is not clear to everyday citizens that they aren’t being exploited.
And it doesn’t help when their concerns are dismissed as “nonsense”.
Everyday readers—consumers, workers, voters, citizens—might not be able to articulate their concerns as precisely as someone with more economics training.
They might not be able to name the issue as one of an industry constant (i.e., greedy actors) being amplified by growing monopolies, in an era of multiple global crises that also complicate production, distribution, and market-recovery pathways.
But these same everyday readers do see news items that show industry execs talking about “significantly higher” retail inflation. They see huge profits made through specific, memorable cases of illegal data-sharing practices—in housing, in medicine, in electronics, and in food: all essentials to surviving in the modern era. And they see major corporate mergers that reduce overall consumer choice.
Are these “merely” anecdotes, and not actually indicative of market data totalities? Even if so, they are joined by personal experiences of essential product and service mark-ups—which average consumers are then contemptuously told are their fault, for not exercising enough market flexibility (i.e., simply choosing another product if one is priced too high) or for the audacity of buying products at all, when “clearly” they can easily return power to the consumer by withholding market participation.
It’s not that there isn’t validity to many facets of economic analysis pushing back on the common narrative of price-gouging—and of course we should interrogate whether government price-fixing is a workable and useful solution to illegal market price-fixing, or a political placebo that overlooks the bigger problem of market monopoly.
But legacy media has not made it easy for us to improve our everyday civic knowledge around critical issues like these. And even when more thorough, technical analyses emerge, they routinely exclude people with ongoing, everyday experiences of socioeconomic hardship, by dismissing their concerns and coherent responses to galling anecdotes of corporate overreach as “nonsense”.
People are struggling—in raw financial terms, and with respect to access to housing, healthcare, and food; but among the struggles faced not only by US citizens but also quite a few of us globally is the impoverished state of our knowledge economy.
In a media ecosystem that thrives on sensational clickbait in lieu of more empowering, inclusive, and educational topical analysis, how can we ever hope to cultivate the civic agency necessary to make informed choices not only at the polls, but also in the rest of our democratic and economic lives?
Be well, be kind, and seek justice where you can.
ML
I know one of the most frustrating discussions I hear and deal with on social media is a portion of the left who say that 'The economy is great, why doesn't Biden get credit for this' while simultaneously ignoring what people are dealing with on the ground. People have to take out loans for groceries, and are defaulting on car loans, in addition to the other costs we have to absorb. These aren't exactly promising signs of a healthy economy for ordinary USians.
One thing that goes into greedflation that isn't discussed much is how much of the 'middle men' who people don't see that end up raising prices on their services which are vital to maximize their shareholder value, and then the companies people deal with have to raise prices to deal with this phenomenon. One term I've heard is 'economic termites' and I think it is pretty apt. Equifax is one of these, and since they are responsible for credit reports for people who want to get home loans, it is very hard to dislodge them from their position.
https://www.thebignewsletter.com/p/economic-termites-are-everywhere