Antitrust Lawsuit Targets Hotel Giants for Alleged Price Fixing with AI

A major antitrust class action lawsuit has been brought to federal court in San Francisco. The lawsuit, filed on Friday, accuses six prominent hotel operators of colluding to manipulate prices for their rooms through the use of AI-powered software designed to provide pricing recommendations. The plaintiffs and proposed class representatives are eight individual consumers who have patronized one or more of these hotel chains within the last four years, per CNBC.

At the center of the 41-page complaint is the allegation that Integrated Decisions and Systems, Inc. (IDeaS) of Minnesota, along with its parent company, SAS Institute, Inc., developed and licensed software known as “G3 RMS,” touted as the hotel industry’s leading “revenue management system.” However, the lawsuit contends that this system, rather than enhancing competitive advantage in pricing decisions as claimed, serves as a tool for price fixing in an anticompetitive manner.

The defendants named in the suit are six well-known hotel chains: Hilton Worldwide Holdings Inc, Wyndham Hotels & Resorts, Inc, Four Seasons Hotels and Resorts US Inc, Omni Hotels and Resorts Inc, and Hyatt Hotel Corporation, along with Choice Hotels International Inc, which encompasses various budget-conscious brands. Together, these defendants operate thousands of hotels across the United States.

The lawsuit specifically alleges price fixing across several major geographical markets, including the San Francisco-Oakland-Fremont, CA Metropolitan Statistical Area, where all the defendants maintain hotel properties. Even though Choice Hotels International Inc. doesn’t have properties within San Francisco, it operates nearby, intensifying the geographic scope of the alleged collusion.

Underpinning the lawsuit is the Sherman Antitrust Act, which has long prohibited competitors from engaging in agreements to fix prices. While explicit agreements can be challenging to prove, the case builds on the concept of tacit collusion, where actions by competitors suggest coordinated behavior inconsistent with normal market competition.

The complaint points to the defendants’ alleged use of an algorithm powered by artificial intelligence to automate the process of price fixing. Through IDeaS’s software, competing hotel operators purportedly supply sensitive information about room availability, demand and pricing, allowing the system to continuously monitor and adjust prices across the market.

The emergence of algorithmic pricing in antitrust law has attracted scrutiny from regulators, with concerns raised about the exchange of confidential business information facilitated by such systems. Quoting a former Federal Trade Commission commissioner, the complaint underscores the fundamental question of whether it is permissible for an algorithm, akin to a human intermediary, to gather and disseminate confidential pricing strategies among market participants.

Related: CBS News