Spring is here and summer is on the way, and for many people, that means it’s time for vacations. But like almost everything else, the cost of vacations are on the rise.
If hotel costs seem higher than usual, especially luxury hotels, the reason might not be because of supply and demand. A federal class action lawsuit filed in the United States District Court Northern District of Illinois alleges several of the largest luxury hotel chains in the country are violating antitrust laws by using technology to share and set rates.
Some of those hotels can be found in Charlotte in the heart of Uptown. The Ritz-Carlton, Marriott, Omni, and more are all named in the lawsuit, with Omni and Marriott in Charlotte specifically mentioned.
What is price-fixing?
Price-fixing, for the most part, has been illegal in the United States for decades. According to the Federal Trade Commission, it’s “an agreement (written, verbal, or inferred from conduct) among competitors to raise, lower, maintain, or stabilize prices or price levels. Generally, the antitrust laws require that each company establish prices and other competitive terms on its own, without agreeing with a competitor.”
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The lawsuit accuses Hilton, Marriott, Ritz-Carlton, Accor, InterContinental Hotels Group, Hyatt Hotels, Starwood Hotels & Resorts, Four Seasons Hotels, Minor Hotel Group, Omni Hotels, and Loews Corporation – as well as Amadeus IT Group and Amadeus Hospitality Americas, the technology company, of violating antitrust laws.
It’s a case that, in many ways, mirrors lawsuits filed against similar technology companies for allegations of price fixing the rental rates of apartments across the country.
Channel 9 reported on an ongoing case earlier this month that dealt with that exact situation. Several companies are accused of being a part of a price-fixing scheme that affects rent prices. N.C. Attorney General Josh Stein is currently investigating claims against the tech company involved in that case.
Allegations
The Sherman Antitrust Act dates to 1890 and is the foundation for antitrust laws in the United States. These laws aim to prevent anticompetitive agreements and monopolies of markets.
In this case, the plaintiff accuses the hotels of working together to raise rates by using nonpublic data amongst themselves, limiting competition and artificially inflating prices.
“When purchasers make choices about what products and services to buy, they expect that the price has been determined on the basis of supply and demand, not by an agreement among competitors,” according to the FTC.
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One of the basic tenants of a free-market economy is supply and demand. When supply outpaces demand for a product or service, prices typically decrease as companies want to move their products. When demand is higher than supply, prices usually increase.
The lawsuit alleges by using technology that shares pricing information and other confidential data, the hotels are colluding to essentially decrease supply to raise prices and increase demand.
“Hotel Defendants have been able to charge increased rates for rooms at Luxury Hotels despite historically low overall demand, divorced from the market forces that drive supply and demand in a competitive environment. They would not have been able to do so in a competitive market. Instead, competition would have forced the Hotel Defendants to lower room rates in order to put ‘heads in beds,’” according to the lawsuit.
Amadeus’ software, called Demand360, allegedly allows the hotel companies to gain insights, including 12-month forward-looking data, these companies would previously not be privy to in the past.
“… Armed with the occupancy data from Demand360, Hotel Defendants no longer need to cut prices to fill rooms but can increase (and maintain) artificially inflated rates based on otherwise proprietary information about competitors’ room supply,” the lawsuit claims.
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Impact
The impact of the software’s use by these hotel companies is significant and includes data from 44,000 hotels, according to the lawsuit.
Price-fixing is a concern across many industries in the country, and it’s so significant that President Joe Biden issued an executive order on “Promoting Competition in the American Economy.”
“There are a number of reasons for these trends towards greater concentration, including technological change, the increasing importance of “winner take all” markets, and more lenient government oversight over the last 40 years,” a White House press statement reads.
On Thursday, the FTC released a filed a statement of interest on yet another lawsuit alleging similar price-fixing behaviors by hotels.
“Companies across the economy are increasingly using algorithms to determine their prices. When a small group of algorithm providers can influence a major segment of a market, competitors are better able to use the algorithm provider to facilitate collusion. This risk is even greater as markets have become more concentrated across a wide range of industries. Algorithms that recommend prices to numerous competing hotels make it harder for travelers to comparison-shop for the best rate,” according to the FTC’s release.
(WATCH BELOW: Code enforcement denied entry at Charlotte Airbnb with $23 rooms)