The Federal Trade Commission and the Department of Justice Antitrust Division issued a warning to hotel companies about the potential violation of antitrust laws when using the same pricing software as competitors in concentrated markets. This warning came in response to a class-action lawsuit against hotel operators in Atlantic City, N.J., accusing them of keeping room rates artificially high by sharing a third-party pricing system.
The plaintiffs in the Atlantic City case alleged that the use of the pricing software allowed hotel operators to exchange confidential information and reduce price competition, resulting in higher room rates for consumers. The hotel operators, including Caesars Entertainment, denied any wrongdoing. If this case goes to trial and the hotel operators and software vendor are found guilty, it could lead to increased scrutiny of how all hotel operators in the U.S. use pricing software.
Many companies, including hotel operators, rely on third-party software to set prices based on proprietary data and demand signals. This algorithmic pricing system has raised concerns about cartel-like price coordination, particularly in concentrated markets. Lawsuits against software vendors like RealPage and Yardi have drawn interest from regulatory authorities. Copycat lawsuits in various sectors, including casinos in Atlantic City, have also been filed.
The Atlantic City hotel lawsuit consolidated multiple class actions against Caesars and other operators for using Cendyn Group’s Rainmaker revenue-management software. The hotels involved in the lawsuit held an 80% market share in Atlantic City and allegedly used the software to set room rates between mid-2018 and late 2020. The Department of Justice and the Federal Trade Commission highlighted aspects of competition law that the court should consider, emphasizing that competitors should not collaborate on pricing, even indirectly through shared software.
The agencies argued that the use of pricing algorithms could still be unlawful even if co-conspirators retained some pricing discretion and even if the impact was on starting prices in the market. The case’s outcome is uncertain, as a similar case against casino hotels in Las Vegas was dismissed by a district court. Recently, U.S. senators have proposed a bill to clarify potential antitrust violations resulting from using algorithmically based pricing software. This case reflects a broader concern about the use of pricing software in concentrated markets and potential anticompetitive behavior.
