Here's a budding lawsuit worth keeping your eye on.
Casino operators that account for about 90% of the rooms on the Las Vegas Strip—Caesars Entertainment, MGM Resorts International, Treasure Island, and Wynn Resorts—have been hit by a class action lawsuit that alleges those companies collectively used third-party booking software to artificially set room prices higher.
The complaint, filed last week in U.S. District Court in Las Vegas, claims that Rainmaker Group Unlimited, a revenue management company owned by Cendyn, provided a shared algorithm that enabled "a scheme perpetrated by some of the largest gaming and hospitality companies," according to Hagens Berman, a law firm representing plaintiffs.
The alleged scheme involved an unfair exchange of information that resulted in most of the city's room rates getting set higher than the market price.
The lawsuit alleges that the use of a shared pricing algorithm constitutes a violation of the Sherman Antitrust Act and is a machine form of price collusion.
According to the court filing, Rainmaker told hotel management clients that its algorithm "allows [properties] to price rooms independently of overall demand. This is directly contrary to how pricing functions in a competitive market, where fundamental market forces lead to pricing occurring based upon where the supply and demand curves meet.”
Lawyers are seeking a jury trial and have requested input from anyone who booked a Vegas hotel room anytime since 2019 at the Bellagio, Caesars Palace, The Cosmopolitan, MGM Grand, Paris Las Vegas, Planet Hollywood, or Wynn. Consult the Hagens Berman website for more information.
The Las Vegas Review-Journal reports that in 2022 the average daily room rate on the Strip hit record highs, going above $200 for the first time—and that's before resort fees.
"Since the coronavirus pandemic, many Strip resorts have made conscious efforts to keep hotel rates high to avoid the appearance of reductions in quality," reported the Review-Journal.
Some legal experts think the reasoning behind the suit could have legs because of a 2017 speech by a former head of the Federal Trade Commission who spoke about the risks of algorithms. In the speech, former acting chairperson Maureen Ohlhausen said the FTC prohibits "explicit agreements to set prices collusively and exchanges of competitively sensitive, non-public information between competitors."
Ohlhausen warned, "Just as the antitrust laws do not allow competitors to exchange competitively sensitive information directly in an effort to stabilize or control industry pricing, they also prohibit using an intermediary to facilitate the exchange of confidential business information."
Such exchanges of non-public information between competitors, the Vegas lawsuit alleges, are exactly what the Rainmaker Group's third-party algorithm makes possible.
The court filing claimed that two Rainmaker Group employees had stepped forward confidentially to tell attorneys that some 90% of properties on the Strip use the algorithm in dispute.
"Our antitrust attorneys have uncovered what appears to be an unlawful agreement in which Rainmaker collects and shares data between Vegas hotel competitors to unlawfully raise prices of hotel rooms," said Hagens Berman managing partner Steve Berman in a statement.
"By incentivizing its users to suppress the supply of hotel rooms, Rainmaker artificially drove up prices and directly harmed consumers," Berman said. "These corporations created a scenario in which the house will always win, and they’ve broken the law to do so."
MGM Resorts told the Associated Press the lawsuit was "meritless." The other hotel operators did not comment.
If this lawsuit succeeds, other segments of the travel industry that use algorithmic pricing systems as part of their ecosystems, such as airlines and car rental agencies, could also fall under the microscope.
