Skift Take
Two U.S. federal agencies have cautioned hotel companies about the risks of using the same pricing software as their competitors in highly concentrated markets, as it may violate antitrust laws.
Caesars Entertainment and other hotel operators in Atlantic City, N.J., are facing a class-action lawsuit alleging that their shared use of a third-party pricing system led to artificially high room rates in the city. On Thursday, two federal agencies showed interest in the case.
The Federal Trade Commission and the Department of Justice Antitrust Division joined forces in filing a statement of interest in the lawsuit, brought by some travelers against the hotel operators.
They argued that in certain situations, competitors using the same software to set prices could be considered collusion. The filing presented the agencies’ interpretation of antitrust law to guide the New Jersey district court.
In the lawsuit, plaintiffs who booked hotel stays in Atlantic City claim that the software enabled hotel operators to exchange confidential information while setting prices, leading to reduced price competition.
The hotel operators and the software vendor, Cendyn, have denied any wrongdoing.
Why it matters
If the Atlantic City case goes to trial and the hotel operators and software vendor are found culpable, it could prompt further examination of how hotel operators across the U.S. utilize software to determine room rates.
Many companies, including hotel operators, increasingly rely on third-party software to inform their pricing strategies. These algorithmic pricing systems analyze proprietary data and demand signals to suggest whether prices should be raised or lowered.
In a report by ProPublica in 2022, it was mentioned that some residential landlords were using similar software to set rental prices, leading to cartel-like price coordination in markets where they held significant ownership. Ongoing lawsuits against software makers like RealPage and Yardi have attracted attention since then.
Similar lawsuits have been filed in various sectors, including against casino hotel operators in Atlantic City.
The Atlantic City hotel lawsuit
Caesars and its competitors were targeted last year by three proposed class actions for using the same Cendyn Group’s Rainmaker revenue-management software to set hotel room rates in Atlantic City. In January, New Jersey’s federal court consolidated the cases into Cornish-Adebiyi v. Caesars Entertainment.
The hotels involved were Caesars Atlantic City, Harrah’s Atlantic City, Tropicana Atlantic City, Bally’s Atlantic City, MGM Resorts’ Borgata, and Hard Rock Atlantic City. Between mid-2018 and late 2020, these hotels reportedly controlled 80% of the market share in Atlantic City, with Caesar’s having the largest share of rooms.
The DOJ and FTC view
In their statement, the Justice Department and the FTC highlighted certain aspects of competition law for the judge to consider. They emphasized that competitors cannot collaborate to determine prices, even if they never directly communicate and solely use shared software.
The agencies informed the court that they believed the use of pricing algorithms could still be deemed unlawful even if co-conspirators maintained some pricing discretion by not delegating all pricing decisions to the software.
They argued that laws could be violated even if the price overlap only affected initial prices in the market. Laws might also be breached even if many consumers ultimately booked higher-priced offers that were not set by the software.
Uncertain Next Steps
The outcome of the case remains uncertain. In October, a similar case against casino hotels in Las Vegas was dismissed by a district court. Last month, some U.S. senators proposed a bill to clarify laws regarding potential antitrust violations resulting from the use of algorithmically based pricing software.
