Algorithms could help hotels illegally collude on prices, even if no humans at those companies talk to each other about them, according to US antitrust authorities.
The Department of Justice and the Federal Trade Commission jointly filed a statement of interest in Cornish-Adebiyi v Caesars Entertainment, a case filed in the United States District Court of New Jersey. The class action case was brought by New Jersey residents who rented rooms in Atlantic City hotels and alleged that several of those hotels participated in an illegal price-fixing conspiracy by using a common pricing algorithm.
The plaintiffs are trying to show that the hotels violated Section 1 of the Sherman Act, which prohibits “conspiracy in restraint of trade” and is used to prosecute illegal price fixing. They say the hotels allegedly used a pricing algorithm platform called Rainmaker, knowing their competitors were also using the platform and choosing it for that reason.
Agencies really care how this issue is handled. “Judicial treatment of the use of algorithms in pricing has enormous practical importance,” the DOJ and FTC write in their statement. They have already filed similar statements in other algorithmic pricing cases, such as in a lawsuit. against rental property management software company RealPage. The tenants have accused the company of tech“>contributing to the increase in rental prices through their access and use of owners' non-public price data.
In the hotel case, the DOJ and the FTC are challenging two claims that the hotels have filed to try to get the lawsuit dismissed. One claim is that the plaintiffs needed to allege that the hotels communicated directly with each other in order to plausibly prove a violation of the Sherman Act. And the other is that the lawsuit should be dismissed because the pricing algorithm only produced recommendations, not binding pricing requirements.
Law enforcement officials say this is wrong. “(T)here is no legal requirement that a plaintiff must allege specific communications directly between competitors simply to allege an agreement subject to Section 1,” they write. “As long as the algorithm provider and its competing customers are connected through this common agent in 'a unity of purpose or a common design and understanding'… they are acting in concert.”
They also say it doesn't matter that the algorithm's recommendations were non-binding. They say the precedent of Section 1 of the Sherman Act shows that setting list or sticker prices is illegal, “even when the final prices charged are different.”
“Defendants' position is also inconsistent with case law holding that the breach is the agreement, not the frequency with which it is fulfilled,” the agencies write. They added that, depending on the hotels' perspective, a price-fixing cartel could try to avoid punishment “by simply inviting to participate some competitors who tend to deviate from the fixed prices or by agreeing to allow some deviation.”
