Are you wondering why it's so expensive to stay at a hotel right now? The rooms start at like $1,000, $1,500. Some of these hotel rooms, suites, go up to like $12,000 a night.
What if I told you the rates that many hotels are charging are artificially inflated? That's the implication of multiple federal lawsuits accusing hotels of using algorithms to fix prices in tandem. Draining your wallet and maximizing profits across the industry.
So how does it all work? In the age of big tech, there's no need to gather in smoke-filled rooms to rig rates. In fact, there's no need to communicate at all.
Let's take a look at what happened in Atlantic City. A lawsuit filed last year accused hotels, including Caesars, Tropicana, Hard Rock... and others of an ongoing conspiracy to fix, raise, and stabilize prices.
In the past, hotels that had higher prices were undercut by competitors offering similar rooms at lower rates. But all of that changed in 2018 when hotels started handing over their internal data to Sendin, a private equity-owned software company. Over recent decades, Sendin has evolved into a global leader. for digital transformation in the hospitality industry. The software, which uses algorithms to suggest, quote, optimal prices for rooms, is designed to solve the problem of, quote, competitor rate-shumping.
In other words, to bypass pesky competition in the market created by a platform where competitors could work together to keep prices high. The hiked-up prices set by Sendin are presented to customers who, according to the company, accept the prices 90% of the time. Now, here's where things get interesting. Since 2018, we've seen rates skyrocket. Occupancy has dropped.
In 2017, the average hotel room in Atlantic City was $108 per night. In 2022, $178. That's a 65% increase in just five years.
At the same time, occupancy rates fell from 87% to 73%. You might think lower occupancy would mean less money for the hotels, but because these hotels simultaneously raised prices, they were able to increase overall revenue. Sure, a few potential customers were priced out, but anyone who wanted to stay was effectively forced to pay the higher price because there were no alternatives. All in all, revenue for the hotel industry in Atlantic City rose from $1.5 billion to $1.5 billion.
40% between 2017 and 2022. If you're thinking that all of this sounds very familiar, that's because it's happened before, only with rental properties. Earlier this year, the Department of Justice opened a criminal probe into a company called RealPage. The attorney generals of Arizona and D.C.
are suing RealPage and a host of big landlords, alleging that an algorithmic housing cartel is helping drive up prices. And what's more, both send in And RealPage can be traced back to the same company, Rainmaker. Rainmaker sold its real estate software to RealPage in 2017, and its hotel and casino software to Sendin in 2019 for an undisclosed sum. Allegations of hotels conspiring to inflate room rates with secret algorithms extend far beyond Atlantic City.
A separate lawsuit alleges that luxury hotel chains in 15 major cities across the U.S. are using a similar technology called Smith Travel Research, or STR. The complaint involves hotel giants like Hilton, Hyatt, Intercontinental, and Marriott. They've been accused of sharing detailed information about prices, supply, and their future plans through STR.
This data is then used to inform hotels on whether their prices are high enough to receive their, quote, fair share of revenue. According to an internal whistleblower, STR is used by almost every luxury hotel in the country. One witness even says it's, quote, like oxygen or water for the hotel industry. Now, you might be thinking, how could this possibly be legal?
Well, in the Atlantic City lawsuit, the hotels maintain that since they're not communicating directly with each other, They're not violating antitrust laws. They're also saying that the prices recommended by Sendin aren't binding. The luxury hotels using STR are making a similar argument. They say STR is simply providing, quote, benchmarks for pricing. But the U.S.
Department of Justice disagrees. They argue that according to the Sherman Antitrust Act, even if hotels never talk directly, Using a common system to set prices could still violate antitrust laws. They also say it doesn't matter if prices recommended by software aren't binding.
Conspiring to fix the starting point of pricing is unlawful, regardless of what price ends up being charged. The collusion in the hotel industry reveals the truth behind exorbitant prices. This is not the invisible hand of the market.
It's good old-fashioned price fixing. As algorithms continue to shape our markets, it's going to be more important than ever for government regulators to intervene and call out these corporate grifters for their illegal schemes. Thanks for watching. And don't forget to like and subscribe to get more stories like this one.
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