U.S. antitrust enforcement agencies say algorithms may help hotels illegally fix prices, even if people at those businesses don’t actually talk to each other about the issues.
The Department of Justice and the Federal Trade Commission jointly filed a statement of interest Cornwall-Adebiyi v. Caesars Entertainment Inc., Case filed in U.S. District Court for the District of New Jersey. The class action lawsuit was filed by New Jersey residents who rented rooms at Atlantic City hotels, who claimed that several of the hotels engaged in an illegal price-fixing conspiracy by using a common pricing algorithm.
The plaintiffs sought to prove that the hotels violated Section 1 of the Sherman Act, which prohibits “conspiracy to restrain trade” and is used to prosecute illegal price fixing. They said the hotels allegedly used a pricing algorithm platform called Rainmaker because they knew their competitors were also using it and chose it accordingly.
These agencies are very concerned about how to deal with this problem. “The judicial approach to the use of algorithms for pricing has enormous practical implications,” the DOJ and FTC wrote in a statement. They have filed similar claims in other algorithmic pricing cases, such as against rental property management software companies A lawsuit against RealPage. Tenants accuse the company of driving up rents by obtaining and using non-public pricing data from landlords.
In the hotel case, the Justice Department and the Federal Trade Commission are challenging two claims made by the hotels in an attempt to have the lawsuit dismissed. One argument is that a plaintiff would need to allege direct communication between the hotels to reasonably demonstrate a violation of the Sherman Act. Another is that the lawsuit should be dismissed because the pricing algorithm only produces recommendations, not binding price requirements.
Law enforcement officials say these are all errors. “[T]The law does not require that plaintiffs allege specific communications between competitors solely for the purpose of alleging an agreement under Section 1,” they wrote. “As long as the algorithm provider and its competitor customers, through this common agent, have a ‘uniform purpose or Shared design and understanding ‘connect…and they will act in unison. “
They also said it didn’t matter that the algorithm’s recommendations were not binding. They said Section 1 precedent of the Sherman Act shows it is illegal to fix a bid or price “even if the price ultimately charged is different.”
“Defendants’ position is also inconsistent with case law, which states that it is the agreement that is breached, not the frequency with which it is adhered to,” the agencies wrote. From a hotel’s perspective, they added, a price-fixing cartel can “simply by inviting some competitors who tend to deviate from the fixed price or by agreeing to allow some deviation” to avoid being punished.