Spotlight Shines Brighter on Algorithmic Price-Fixing by Hotels

After a series of lawsuits, newly expressed interest in a case by the DOJ and FTC could signal more scrutiny over alleged hotel pricing collusion.

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 Group.

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 past. “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 on Hotel Investment Today.