Spotlight shines brighter on algorithmic price-fixing in hospitality

The U.S Department of Justice is ramping up its scrutiny of how
algorithmic price-fixing impacts consumers across multiple verticals, including
the hotel industry.

The latest news came late last week when the Federal Trade Commission (FTC) and
the Justice Department’s Antitrust Division filed what’s known as a “statement
of interest” with the District of New Jersey in the case of Cornish-Adebivi v.
Ceasar’s Entertainment, according to a press release
issued by the FTC.

In its press release, the FTC explained that “hotels cannot
collude on room pricing and cannot use an algorithm to engage in practices that
would be illegal if done by a real person.”

An increasing number of companies, regardless of the industry, are relying on
algorithms to determine prices, according to the FTC.

“When a small group of algorithm providers can influence a major
segment of a market, competitors are better able to use the algorithm provider
to facilitate collusion,” the FTC stated. “This risk is even greater as markets
have become more concentrated across a wide range of industries.”

Hotel industry insiders said that this could be the tip of the
iceberg for further scrutiny with this news coming after other lawsuits
initiated last month. 

An antitrust class
action suit
 launched in Washington Western District Court
accuses major hotel chains of conspiring to fix hotel rates by exchanging data
through Smith Travel Research, a market analytics platform owned by CoStar

A similar lawsuit was launched on March 1 in Illinois Northern
District Court over hotels’ use of Amadeus Hospitality’s analytics platform
Demand360. The lawsuit accuses multiple major global hotel companies as well as
Amadeus IT Group and Amadeus Hospitality Americas of violating antitrust laws
by allegedly allowing hotel companies to gain insights, including 12-month
forward-looking data, these companies would previously not be privy to in the

“Armed with the occupancy data from Demand360, Hotel Defendants no longer need
to cut prices to fill rooms but can increase (and maintain) artificially
inflated rates based on otherwise proprietary information about competitors’
room supply,” the lawsuit claims.

A spokesperson for Amadeus told Hotel Investment Today, “We are
aware of the complaint. Amadeus disputes the allegations and intends to defend
itself vigorously against the lawsuit. We are confident that our products
comply with all regulations.”

Last year, a U.S. judge dismissed a proposed class action suit
accusing MGM Resorts, Caesars Entertainment and other hotel operators in Las
Vegas of conspiring to overcharge for room rates in violation of U.S. antitrust
law. The complaint claimed the hotel defendants used shared data from Cendyn
subsidiary Rainmaker to “defy supply and demand dynamics” involving vacant
rooms and hotel prices.

Biden administration weighs in

This latest statement of interest filed by the FTC and DOJ makes
clear that the government’s position is that hotels using algorithms to set
room prices are violating antitrust laws. The filing was made in support of
plaintiffs that are suing Caesars Entertainment and other casinos.

That class action case, filed by a group of New Jersey residents,
alleges that several hotels engaged in an illegal price-fixing conspiracy with
the use of a common pricing algorithm to set hotel room rates. Plaintiffs are
hoping to establish that the hotels operated in violation of Section 1 of the
Sherman Act, a law that bars conspiracy in restraint of trade.

The impact of the software’s use by these hotel companies is
significant and includes data from 44,000 hotels, according to the lawsuit
filed in Illinois Northern District Court.

Price-fixing is a concern across many industries in the country,
and it’s so significant that U.S. President Joe Biden issued an executive
order on “Promoting Competition in the American Economy.”

“There are a number of reasons for these trends towards greater
concentration, including technological change, the increasing importance of
‘winner take all’ markets, and more lenient government oversight over the last
40 years,” a White House press statement read.

*This article originally appeared in Hotel Investment Today.

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