Hotel Room Rates Rigged? San Francisco Lawsuit Claims AI Price-Fixing Scheme

Six hotel chains in California are being accused of doing something akin to playing a high-tech game of monopoly, allegedly rigging prices through AI-powered software in a brazen violation of antitrust laws, according to a new lawsuit. 

Filed by guests who stayed at hotels owned by Hilton, Wyndham, Four Seasons, Omni Hotels and Resorts, Hyatt, and Choice Hotels International (which includes the budget conscious brands Comfort, Quality Inn, Sleep Inn, Econo Lodge, and Rodeway Inn), the antitrust class action filed in San Francisco federal court alleges the companies colluded to fix room prices using the software’s pricing recommendations, KRON 4 reports.

Guests allege algorithmic advantage

According to the lawsuit, the chains, which own thousands of hotels across the country, fixed prices in markets including San Francisco, Oakland, Fremont, and more by using an AI-powered software called G3 RMS, made by Integrated Decisions and Systems, Inc., or IDeaS. 

The lawsuit says the software is known as the hotel industry’s leading “revenue management system,” is promoted for hotels to get a “competitive advantage” in pricing decisions, and is marketed as bumping up hotel revenue from eight to 15 percent.

However, the hotel guests argue what the software really does is push up prices for consumers through the algorithmic tool, which feeds price suggestions based on the real-time proprietary, non-public, and sensitive information about room availability, demand, and pricing that the hotels provide the software. 

How the system allegedly works 

The hotel guests argue in the lawsuit that even as occupancy in the hotels falls, the revenue the companies are making increases because “every defendant is currently charging the highest or near-highest average rates for hotel rooms in its history despite a lack of corresponding increase in occupancy demand.” 

They also allege that to make the most profit, the hotels are encouraged to be faithful “co-conspirators” and follow the softwares suggestions. Because the AI-powered algorithm is constantly developing, they say the overcharging issue is only going to get worse. 

“By sending their sensitive confidential pricing and occupancy information to a third party to process, analyze, and develop supra-competitive prices, the [defendants] are able to achieve the same result as if they secretly met in a back room and exchanged their information and agreed to a supra-competitive price,” the guests allege in the lawsuit.

Consumers fight back, government takes notice

Other hotel companies and software providers have been hit with legal action over very similar schemes. In February, CoStar and a group of luxury hotel operators including Hilton, Hyatt, and Marriott were sued for alleged price fixing, Reuters reported. 

Then in March, tech company Amadeus IT Group and Amadeus Hospitality Americas, along with several hotels, were also the subject of a consumer class action lawsuit accusing them of using software that allowed them to conspire to set room rates, in turn raising prices for consumers, Yahoo reports.

Late last year, a Nevada judge dismissed a lawsuit filed by hotel guests accusing MGM Resorts, Caesars Entertainment and other Las Vegas hotel operators of violating antitrust laws. In her ruling, Chief U.S. District Judge Miranda Du said the lawsuit included "ambiguity" and "numerous deficiencies,” but allowed the plaintiffs to submit an amended case, Reuters reported. 

The consumer complaints seem to have caught the eye of the government, with the Federal Trade Commission joining the Justice Department’s Antitrust Division in filing a statement of interest in one such case in New Jersey, where Caesars Entertainment is accused of price fixing. The statement says hotels cannot collude on room pricing and cannot use an algorithm to engage in practices that would be illegal if done by a real person.

“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,” the FTC writes. 

“Competitors cannot lawfully cooperate to set their prices, whether via their staff or an algorithm, even if the competitors never communicate with each other directly.”

The FTC and Justice Department have also recently filed a statement of interest in an algorithmic price-fixing case in the residential housing market, and the Justice Department’s Antitrust Division filed a statement of interest and memorandum of law in another real estate algorithmic price-fixing case last year, the FTC reports. 

The division also has an ongoing case alleging that a middleman orchestrated a yearslong conspiracy to share pricing and other sensitive information among meat processing competitors.