I’ve been traveling to NYC less recently because the hotel prices in the places I’ve always stayed have sky-rocketed. They were never inexpensive but now they’re ridiculous. I was on the phone yesterday with a friend of mine who lives in New York and who has been spending a lot less time in Los Angeles. He mentioned the same thing— hotel prices have exploded. I just spent a couple of weeks in Amsterdam and found the same thing— hotel room rates through the roof. They were so high in Paris that I decided to cancel my side trip there altogether. Many of my friends have given up on hotels completely and stay in short-term apartment rentals through Airbnb or Vrbo.
Yesterday, Judd Legum took a look into the collusion that has sent hotel prices to the moon. Confirming exactly what I had experienced, he wrote that “If you traveled this summer, the rate you paid at hotels may have been artificially inflated” and began the explanation: “According to two lawsuits, numerous hotel operators are participating in an illegal scheme to increase their prices. In a traditional price-fixing arrangement, rival executives gather in a smoke-filled room to rig rates. In the modern version, competitors do not need to talk. Instead, companies who ordinarily would compete send their internal data to a third party. The third party then uses an algorithm to advise the companies on the ‘optimal’ prices to charge customers. Although the mechanism is different, the outcome is the same; customers pay significantly higher prices than they would in a truly competitive market.”
He used Atlantic City to demonstrate the scam: “ An ongoing federal lawsuit filed last year alleges that many of Atlantic City's casino-hotels, including Caesars, Harrah's, Tropicana, Borgata, and Hard Rock, are ‘engaging in an ongoing conspiracy to fix, raise, and stabilize the prices’ of rooms. Collectively, these properties control about three-quarters of the rooms in Atlantic City. According to the lawsuit, the casino-hotels conspire through the use of ‘a shared pricing algorithm platform,’ Cendyn… designed to ‘solve’ the problem of ‘competitor rate shopping.’... Since 2018, when the hotel-casinos in Atlantic City began using Cendyn, there have been ‘substantial increases in room rates and revenue coupled with marked decreases in occupancy rates.’” In other words, room rate competition was eliminated, driving up prices— and decreasing the number of people who rented rooms.
This strategy worked and created an overall increase in "room revenue" in Atlantic City— from $495 million in 2017 to $698 million in 2022, according to state filings. Over the same time period, the average room rate increased from $108 per night to $188 per night and occupancy rates decreased from 87% to 73%.
The strategy worked because all the hotel-casinos pursued this strategy simultaneously. A few potential visitors were priced out, reducing occupancy rates. But the casino-hotels were able to increase overall revenue because anyone who wanted to stay in Atlantic City was effectively forced to pay the higher price. There were no alternatives.
The defendant hotel-casinos argue that using Cendyn does not violate antitrust laws because there were no direct communications between competitors and the prices recommended by Cendyn were not binding. They are asking a federal judge to dismiss the case.
The Justice Department's Antitrust Division filed a “statement of interest” urging the court to reject this argument. In the filing, the Justice Department argues that price fixing does not require the parties involved to communicate directly. The Sherman Antitrust Act, the Justice Department says, “prohibits competitors from delegating key aspects of pricing decision-making to a common entity, even if the competitors never communicate directly with each other.” The Justice Department also says it doesn't matter that the prices recommended by Cendyn were not binding. Conspiring “to fix the starting point of pricing is… unlawful, no matter what prices the competitors ultimately charge.”
If this sounds similar to how corporate landlords are allegedly using RealPage software to increase rents, it is not a coincidence. Both the Cendyn and RealPage software can be traced back to the same company, Rainmaker.
Rainmaker sold its “real estate property management and data analytics software” to RealPage in 2017 so it could “focus exclusively on the hotel and gaming industry.” In August 2019, Rainmaker sold its remaining hotel and casino software business to Cendyn for an undisclosed sum.
Allegations that hotels are conspiring to inflate room rates extend far beyond Atlantic City. In a class action lawsuit filed early this year, the plaintiffs allege that luxury hotels in major cities across the country are conspiring to increase their prices through a software program called Smith Travel Research (STR), which is owned by CoStar.
The lawsuit involves many of the most prominent luxury hotel brands in the country (Hilton, Hyatt, Intercontinental, and Marriott) operating in 15 major cities (Austin, Boston, Chicago, Denver, Kansas City, Los Angeles, Miami, Nashville, New York, Phoenix, Portland, San Diego, San Francisco, Washington D.C. and Seattle). According to the complaint, these luxury hotels “have agreed to continuously share their detailed, audited, competitively-sensitive information about their prices, supply, and future plans” through STR. This allows the hotels “to set prices higher than they would have been absent this agreement to exchange information.”
Under the agreements signed by the luxury hotels with STR, they can only receive their competitors’ pricing and supply information if they also provide the same information to STR. While STR does not provide exact pricing recommendations, it uses the data to inform hotels on whether their prices are high enough to receive their “fair share” of revenue.
According to a whistleblower who shared information with the plaintiffs in the case, STR is used by almost every luxury hotel in the country. “STR to the hotel industry is like oxygen or water. You just have to have it,” according to one confidential witness. Like Cendyn, the data provided to luxury hotels by STR “enable and encourage them to increase room rates even at the expense of occupancy because they are informed about their rivals’ past actions and anticipated strategies.”
The luxury hotels are seeking to dismiss the case, arguing that they use STR only for “benchmarking” and have not violated antitrust laws. They describe the plaintiffs’ arguments in the complaint as “fanciful.” The case is still pending.
A lot of things that have gone unnoticed and ignored are violations of Sherman. But the last time Sherman was enforced was over 40 years ago (ATT ==> baby bells). Neither party gives a flying yoctofuck about Sherman. And since voters elect only those 2 parties, they don't care either.
So... there's that.