DOJ and FTC Weigh in on Hotel Price Collusion Case

Caesars Entertainment and other hotel operators in Atlantic City, N.J., have been fighting a class-action lawsuit alleging that their shared use of a third-party pricing system kept the city’s room rates artificially high. On Thursday, two federal agencies took an interest in the case.

The Federal Trade Commission joined the Department of Justice Antitrust Division in filing a statement of interest in the lawsuit, which some travelers had filed against the hotel operators.

The argued that hotel competitors’ use of the same software to set prices could count as collusion in some situations. The filing provided the agencies’ view of antitrust law, aiming to guide the New Jersey district court.

In the case, plaintiffs — who booked hotel stays in Atlantic City — allege that the software allowed hotel operators to swap confidential information as they set hotel prices and to reduce price competition. 

The hotel operators and software vendor, Cendyn, have denied wrongdoing.

Why it matters

If the Atlantic City case goes to trial and the hotel operators and the software vendor lose, it could lead to further scrutiny of how all hotel operators in the U.S. use software to set their room rates.

Many companies, including hotel operators, have increasingly relied on third-party software to inform their prices. These algorithmic pricing systems take proprietary data from companies and demand signals from other sources to suggest whether to raise or drop prices.

A ProPublica report in 2022 noted that some residential landlords were using the same software to set rental prices in markets where they had concentrated ownership. The report alleged that the software produced, in effect, cartel-like price coordination.

Since then, ongoing lawsuits against the software makers, RealPage and Yardi, have drawn interest.

Copycat lawsuits have been filed in other sectors, including against casino hotel operators in Atlantic City.

The Atlantic City hotel lawsuit

Caesars and its competitors were hit last year with three proposed class actions against using the same Cendyn Group’s Rainmaker revenue-management software for setting hotel room rates in Atlantic City.

In January, New Jersey’s federal court consolidated the cases into Cornish-Adebiyi v. Caesars Entertainment.

The hotels 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 near the end of 2020, these hotels allegedly had an 80% market share, the plaintiffs said. Caeasar’s had the largest share of rooms.

The DOJ and FTC view

In a statement, the Justice Department and the FTC highlighted aspects of competition law they thought the judge should consider.

The law doesn’t allow competitors to work together to set prices even if they never communicate directly and only use shared software.

The agencies’ filing told the court that it was their view that the use of pricing algorithms could still be unlawful even when co-conspirators retained some pricing discretion, such as by not handing over all of their pricing decisions to the software.

Laws might also be broken, the agencies argued, even if the overlap in pricing only affected starting prices in a market. Laws might also be broken even if many consumers ultimately booked other, higher-priced offers that weren’t set by the software, the agencies said.

Uncertain Next Steps

The case’s success is uncertain. In October, a Las Vegas district court dismissed a similar case against casino hotels in that city.

Last month, some U.S. senators proposed a bill to clarify the law regarding potential antitrust violations resulting from using algorithmically based pricing software.