Lecture Notes: The Inflation of Hotel Prices

Introduction

• Recent trend: High hotel room prices ranging from $1,000 to $12,000 per night.
• Allegation: Rates are artificially inflated through the use of algorithms.

Allegations Against Hotels

• Federal Lawsuits: Hotels accused of using algorithms to fix prices without direct communication.
• Case Study: Atlantic City
  • Hotels involved: Caesars, Tropicana, Hard Rock, etc.
  • Accusation: Conspiracy to fix, raise, and stabilize prices.
  • Prior to 2018: Competitive pricing with lower rates.
  • Post-2018: Adoption of Sendin software for optimal pricing.

Sendin Software

• Function: Uses algorithms to suggest optimal room prices to prevent competitor price undercutting.
• Impact: Increased hotel revenues despite lower occupancy rates.
  • 2017: Average room price $108; 87% occupancy.
  • 2022: Average room price $178; 73% occupancy.
  • Revenue increase: 40% rise from $1.5 billion.

Broader Implications

• Similarities with RealPage: DOJ probe into algorithmic price fixing in rental properties.
• Connection: Both Sendin and RealPage linked to Rainmaker, a previous real estate software company.

Wider Reach

• Luxury Hotel Chains
  • Allegation: Price fixing in 15 major U.S. cities using Smith Travel Research (STR) technology.
  • Key Players: Hilton, Hyatt, Intercontinental, Marriott.
  • STR Usage: Provides pricing benchmarks and shared data on prices, supply, and future plans.

Legal Standpoint

• Hotel Defense: Claim no direct communication, hence no antitrust law violation.
  • Prices from Sendin and STR are mere recommendations.
• DOJ Argument: Use of a common pricing system could still violate Sherman Antitrust Act.
  • Conspiring to set price starting points is unlawful.

Conclusion

• The price inflation is perceived as traditional price fixing facilitated by algorithms.
• Importance of regulatory intervention as algorithms become more influential in market pricing.

Closing

• Call to action: Engage with more stories, provide feedback, and suggest topics for future coverage.