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The U.S. Department of Justice is stepping up its review of how algorithmic pricing impacts consumers across multiple industry verticals, including the hospitality industry.
The latest news reportedly came late last week when the Federal Trade Commission (FTC) and the Justice Department’s Antitrust Division filed a so-called “statement of interest” with the District of New Jersey in Cornish-Adebivi v. Ceasar’s Entertainment See Federal Trade Press release issued by the Commission.
“Hotels cannot collude in room pricing or use algorithms to engage in illegal conduct that would be committed by real people,” the FTC explained in a press release.
According to the Federal Trade Commission, an increasing number of companies, regardless of industry, rely on algorithms to determine prices.
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“When a small group of algorithm providers are able to influence a major portion of the market, competitors are better able to use the algorithm providers to facilitate collusion,” the FTC said. “As the market becomes more concentrated among individual industry, the risk is even greater.”
Hotel industry insiders said the news may be just the tip of the iceberg of further scrutiny after other lawsuits were filed last month.
An antitrust class action lawsuit filed in the Western District Court of Washington alleges that major hotel chains conspired to manipulate hotel prices by exchanging data through Smith Travel Research, a market analysis platform owned by CoStar Group.
A similar lawsuit was filed in the Northern District Court of Illinois on March 1 over the hotel’s use of Amadeus Hospitality’s analytics platform Demand360. The lawsuit accuses several major global hotel companies, as well as Amadeus IT Group and Amadeus Hospitality Americas, of violating antitrust laws by allegedly allowing hotel companies to obtain insights, including 12-month forward-looking data, that the companies would not previously have known under the investigation. These data. past.
“With Demand360’s occupancy data, hotel defendants no longer need to cut prices to fill rooms, but can instead increase (and maintain) artificially inflated prices based on additional proprietary information about competitors’ room availability,” the lawsuit states.
A spokesperson for Amadeus told Hotel Investing Today, “We are aware of the complaint. Amadeus disputes the allegations and intends to vigorously defend itself against the lawsuit. We believe our products comply with all regulations.”
Last year, a U.S. judge dismissed a proposed class-action lawsuit accusing MGM Resorts, Caesars Entertainment and other hotel operators in Las Vegas of conspiring to charge exorbitant room rates in violation of U.S. antitrust laws. The lawsuit alleges that the hotel defendants used shared data from Cendyn subsidiary Rainmaker to “violate supply and demand dynamics involving vacant rooms and hotel prices.”
Biden administration steps in
The latest statements of interest filed by the Federal Trade Commission and the Justice Department make clear the government’s position that restaurants’ use of algorithms to set room rates violates antitrust laws. The filing was filed in support of plaintiffs suing Caesars Entertainment and other casinos.
The class action lawsuit, filed by a group of New Jersey residents, alleges that several hotels engaged in an illegal price-fixing conspiracy that used a common pricing algorithm to set hotel room rates. The plaintiffs hope to prove that the restaurants were operating in violation of Section 1 of the Sherman Act, which prohibits conspiracy to restrain trade.
The impact of the hotel companies’ use of the software was significant, according to the lawsuit filed in the Northern District Court of Illinois, which included data from 44,000 hotels.
Price fixing is a concern for many industries in the United States, and its significance is so significant that U.S. President Biden issued an executive order on “promoting competition in the U.S. economy.”
“There are many reasons for this trend toward greater centralization, including technological changes, the growing importance of ‘winner-take-all’ markets, and looser government regulation over the past 40 years,” the White House wrote in a press statement.
*This article originally appeared in Hotel Investment Today.
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