Hotels across the U.S. are facing allegations of colluding to inflate room rates, as revealed in recent lawsuits. This scheme, highlighted by two major legal actions, suggests that hotel operators have been manipulating prices through sophisticated software to maximize profits at the expense of travelers.
Modern Price-Fixing Tactics
In a twist on traditional price-fixing methods, where executives used to gather secretly to set rates, modern collusion happens through data-sharing platforms. Instead of direct discussions, hotels send their pricing and occupancy information to a third-party service. This service, utilizing advanced algorithms, advises these hotels on "optimal" prices. The result is significantly higher room rates, removing the benefits of competition.
The most notable case involves Atlantic City’s major casino-hotels, including Caesars, Harrah’s, Tropicana, Borgata, and Hard Rock. A federal lawsuit filed last year claims these establishments have been conspiring to fix, raise, and stabilize room prices. The lawsuit asserts that these hotels use Cendyn, a pricing algorithm platform, to synchronize their rates.
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According to the lawsuit, Cendyn aggregates real-time, non-public pricing and occupancy data from these hotels. The platform then suggests updated room rates multiple times a day, which the hotels adopt 90% of the time. This practice has led to a marked increase in room rates and revenue since 2018, with average rates climbing from $108 to $188 per night, while occupancy rates have dropped from 87% to 73%.
The Legal Battle
The hotel-casinos argue that using Cendyn does not breach antitrust laws because the recommendations are not mandatory. They have requested that the court dismiss the case. However, the Justice Department’s Antitrust Division has challenged this stance. The department’s filing argues that even without direct communication, delegating pricing decisions to a common platform constitutes illegal price-fixing under the Sherman Antitrust Act.
This case mirrors allegations against corporate landlords, which also involve the use of software for rent price manipulation. Both the Cendyn and RealPage software have connections to Rainmaker, a company that once provided similar services before selling its hotel-related business to Cendyn in 2019.
The controversy extends beyond Atlantic City. A national class action lawsuit accuses luxury hotels in major cities of similar collusion through a software program called Smith Travel Research (STR). STR, owned by CoStar, is used by many top luxury hotel chains like Hilton, Hyatt, Intercontinental, and Marriott. The lawsuit alleges that these hotels share detailed pricing information through STR, which helps them set higher rates than they otherwise would.
Luxury hotels defend their use of STR, claiming it is merely a benchmarking tool and not a violation of antitrust laws. They dismiss the plaintiffs' claims as unfounded, but the case continues to unfold.
As legal proceedings progress, these lawsuits highlight a growing concern about the hidden forces shaping the cost of accommodations. Travelers may find themselves paying more for their stays as hotels use sophisticated tools to align their pricing strategies.
Source: Popular Information