What Hilton, Hyatt and Marriott Don't Want You To Know

Summary

The video script discusses the high costs of hotel stays, suggesting that hotels are using algorithms to artificially inflate prices. Lawsuits accuse hotels of price-fixing via software like Cendyn and STR, which propose 'optimal' rates, leading to a 65% increase in Atlantic City's average room rate from 2017 to 2022. Despite lower occupancy, revenue rose due to higher prices. The DOJ argues this could violate antitrust laws, highlighting a need for regulatory intervention against potentially illegal corporate practices.

Takeaways

• 🏨 Hotel room rates have surged, with some suites costing up to $12,000 a night, raising questions about price inflation.
• ⚖️ Multiple federal lawsuits suggest hotels are using algorithms to artificially inflate prices, potentially violating antitrust laws.
• 💡 The shift to algorithmic pricing began in 2018 when hotels started sharing data with Cendyn, a software company specializing in hospitality.
• 📈 Cendyn's software uses algorithms to suggest 'optimal' room prices, aiming to eliminate competition by suggesting rates that are uniformly high.
• 📊 Since 2018, there's been a notable increase in room rates and a simultaneous drop in occupancy rates, yet overall hotel revenue has increased.
• 📉 Despite a drop in occupancy from 87% to 73%, hotels in Atlantic City saw a 40% rise in revenue from 2017 to 2022 by raising prices.
• 🏢 Similar price-fixing allegations have been made against RealPage in the rental property market, hinting at a broader issue with algorithmic pricing.
• 🔗 Both Cendyn and RealPage trace back to Rainmaker, suggesting a common origin for the software used in price-fixing schemes.
• 📚 Another lawsuit implicates Smith Travel Research (STR), used by luxury hotel chains, for sharing price, supply, and future planning information to maintain high revenues.
• ⚠️ The U.S. Department of Justice argues that using a common system to set prices, even without direct communication, could violate antitrust laws.
• 🛑 The hotel industry's use of algorithms to fix prices underscores the need for regulatory intervention to prevent corporate manipulation of market prices.

Q & A

Why are hotel room rates so high currently?

Hotel room rates are high due to allegations of price-fixing through algorithms, as suggested by multiple federal lawsuits.

How do hotels allegedly fix prices?

Hotels are accused of using algorithms to fix prices without direct communication, potentially in violation of antitrust laws.

What is Cendyn and what role does it play in hotel pricing?

Cendyn is a software company that provides algorithms to suggest 'optimal' room prices, aiming to bypass competition and stabilize rates.

How did the hotel industry's pricing strategy change in 2018?

In 2018, hotels started sharing their internal data with Cendyn, which led to a significant increase in room rates and a decrease in occupancy.

What was the average hotel room rate in Atlantic City in 2017 and 2022?

The average hotel room rate in Atlantic City was $108 per night in 2017 and increased to $178 in 2022, a 65% increase.

How did occupancy rates change in Atlantic City between 2017 and 2022?

Occupancy rates in Atlantic City dropped from 87% in 2017 to 73% in 2022.

What was the impact of increased room rates on the hotel industry's revenue in Atlantic City?

Despite lower occupancy rates, the hotel industry's revenue in Atlantic City rose by 40% between 2017 and 2022 due to higher room rates.

What is the connection between Cendyn and RealPage?

Cendyn and RealPage can both be traced back to the same company, Rainmaker, which sold its software to them in separate transactions.

What is Smith Travel Research (STR) and how is it involved in hotel pricing?

STR is a technology used by luxury hotel chains to share detailed information about prices, supply, and future plans, which is then used to inform pricing strategies.

How do the hotels defend their use of algorithms for pricing?

Hotels argue that since they are not communicating directly with each other and the prices suggested by software like Cendyn and STR are not binding, they are not violating antitrust laws.

What is the stance of the U.S. Department of Justice on the use of algorithms for hotel pricing?

The U.S. Department of Justice argues that using a common system to set prices, even without direct communication, could violate antitrust laws, and conspiring to fix the starting point of pricing is unlawful.

Outlines

00:00

🏨 Hotel Price Inflation Scandal

This paragraph delves into the high costs of hotel stays, suggesting that prices are artificially inflated through the use of algorithms by hotels to maximize profits. It discusses federal lawsuits accusing hotels of price-fixing without direct communication, facilitated by software companies like Cendyn. The narrative focuses on Atlantic City, where hotels are accused of conspiring to raise prices using Cendyn's software, which suggests 'optimal' room rates. The software aims to eliminate competition by suggesting prices that customers accept 90% of the time. Despite a drop in occupancy rates, hotels have managed to increase their overall revenue by raising prices. The paragraph also draws parallels with the rental property market, where similar practices are alleged, and hints at a broader industry-wide issue.

05:00

⚖️ Legal Challenges to Hotel Price-Fixing

The second paragraph addresses the legal implications of the hotel industry's alleged price-fixing practices. It contrasts the hotels' claims that they are not violating antitrust laws because they do not communicate directly and that the suggested prices by Cendyn are not binding, with the U.S. Department of Justice's stance. The DOJ argues that using a common system to set prices could still be in violation of the Sherman Antitrust Act, and that conspiring to fix the starting point of pricing is unlawful. The paragraph concludes by emphasizing the need for government regulators to intervene and challenge these practices, which are not the result of market forces but rather deliberate price-fixing. It suggests that as algorithms increasingly influence market pricing, it becomes crucial for regulators to act against such anti-competitive behavior.

Keywords

💡Artificially Inflated Prices

Artificially inflated prices refer to the deliberate manipulation of prices to a higher level than what would be determined by supply and demand. In the video, it is suggested that hotels are using algorithms to fix prices, which is leading to exorbitantly high room rates. This concept is central to the video's theme of price-fixing and its impact on consumers.

💡Federal Lawsuits

Federal lawsuits are legal actions filed in the court system by the federal government against individuals or entities. In the context of the video, multiple federal lawsuits are accusing hotels of price-fixing, which is a critical part of the narrative showing the legal challenges faced by the hotel industry over their pricing practices.

💡Algorithms

Algorithms are sets of rules or steps used to solve a problem or perform a computation. The video discusses how hotels use algorithms to suggest 'optimal' room prices, which is a key mechanism in the alleged price-fixing scheme. The use of algorithms in this context highlights the intersection of technology and market manipulation.

💡Price Fixing

Price fixing is an illegal practice where companies conspire to set prices for goods or services at an artificially high level. The video's central theme revolves around accusations of hotels using algorithms to fix prices, which is a form of collusion that can lead to antitrust violations.

💡Cendyn

Cendyn is a software company mentioned in the video that provides algorithms for pricing suggestions in the hospitality industry. The video implies that Cendyn's software is used by hotels to fix prices, making it a significant entity in the alleged price-fixing conspiracy.

💡Competitor Rate Shopping

Competitor rate shopping is the practice of comparing prices offered by different competitors to find the best deal. The video suggests that hotels are using Cendyn's software to bypass this competitive pressure by setting high prices that are not undercut by lower rates from competitors.

💡Occupancy Rates

Occupancy rates refer to the percentage of available rooms that are actually occupied by guests in a hotel. The video notes a decrease in occupancy rates despite increased room prices, indicating that the price-fixing strategy prioritizes higher revenue over filling rooms.

💡Revenue

Revenue is the income generated from the sale of goods or services. In the video, it's mentioned that despite lower occupancy rates, hotels have managed to increase their overall revenue by raising prices, demonstrating the financial outcome of the alleged price-fixing.

💡Antitrust Laws

Antitrust laws are designed to promote fair competition by preventing anti-competitive practices like price-fixing and monopolies. The video discusses how the alleged use of algorithms to fix hotel room prices could violate the Sherman Antitrust Act, highlighting the legal implications of such practices.

💡STR (Smith Travel Research)

STR, or Smith Travel Research, is a technology mentioned in the video that is used by luxury hotel chains to share information about prices, supply, and future plans. The video implies that STR's data is used to inform pricing strategies, suggesting a role in potential price-fixing among luxury hotels.

💡Wholesaler

A wholesaler is a company that sells goods or services to retailers or directly to the public in large quantities. In the video, the term is used in the context of Rainmaker, which sold its software to companies like RealPage and Cendyn, suggesting a role in the distribution of technology used for pricing in different markets.

Highlights

Hotel room rates have surged to as high as $12,000 a night, suggesting artificial inflation.

Federal lawsuits are accusing hotels of using algorithms to fix prices, potentially violating antitrust laws.

In Atlantic City, hotels like Caesars and Hard Rock are accused of a conspiracy to fix, raise, and stabilize prices.

Cendyn, a software company, is central to the controversy, offering algorithms to suggest 'optimal' room prices.

The software aims to eliminate competition by suggesting prices that bypass market dynamics.

Customers reportedly accept Cendyn's suggested prices 90% of the time.

Hotel room rates in Atlantic City increased by 65% from 2017 to 2022, despite a drop in occupancy.

Despite lower occupancy rates, hotels increased overall revenue by raising prices.

Revenue for Atlantic City hotels rose by 40% between 2017 and 2022, even with fewer customers.

Similar price-fixing allegations have been made against rental property algorithms by the Department of Justice.

Cendyn and RealPage, both accused in lawsuits, can be traced back to the same company, Rainmaker.

Luxury hotel chains are accused of using Smith Travel Research (STR) to share information and fix prices.

STR is alleged to be used by almost every luxury hotel in the U.S., indicating widespread potential collusion.

Hotels argue that since they do not communicate directly, they are not violating antitrust laws.

The U.S. Department of Justice disagrees, stating that using a common system to set prices could still be unlawful.

The hotel industry's alleged collusion reveals a move away from market forces towards price-fixing.

Government regulators are urged to intervene to prevent corporate price-fixing schemes.

Transcripts

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 roomsto 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 competitorsoffering similar rooms at lower rates.

But all of that changed in 2018, when hotels started

handing over their internal data to Cendyn, a private equity owned software company.

Over recent decades, Cendyn has evolved into a global leader

for digital transformation in the hospitality industry.

The software, which uses algorithms to suggest “optimal” prices for rooms,

is designed to solve the problem of “competitor rate shopping.”

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 Cendyn 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

while 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 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 attorneys general 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 Cendyn 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 Cendyn 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 “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

“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 Cendyn aren't binding.

The luxury hotels using STR are making a similar argument.

They say STR is simply providing “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.