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DOJ Backs Plaintiffs in Vegas Hotel Price-Fixing Case Over Algorithmic Pricing

By  |  October 28, 2024

The U.S. Department of Justice (DOJ) has stepped in to support a group of Las Vegas hotel customers who allege that prominent hotel operators, including Caesars Entertainment Inc., manipulated room prices through the use of pricing algorithms. The DOJ’s amicus brief, filed last Thursday in the U.S. Court of Appeals for the Ninth Circuit, argues that algorithmic pricing tools can facilitate collusion, raising concerns about their use in competitive industries.

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    According to Bloomberg, the DOJ’s brief asserts that pricing algorithms “can process more information more rapidly than humans aided by prior communications technologies,” allowing algorithms to potentially amplify and expedite collusion among competitors. This case, the first of its kind to reach a federal appeals court, could set a precedent affecting similar lawsuits across the U.S.

    The plaintiffs in the appeal argue that certain Las Vegas hotels colluded by using the same algorithms created by the Rainmaker Group, a subsidiary of Cendyn Group LLC, to inflate room rates artificially. However, their initial lawsuit was dismissed by Judge Miranda Du of the U.S. District Court for the District of Nevada in May. In her decision, Du determined that the plaintiffs had not provided sufficient evidence to demonstrate a tacit agreement between the hotel operators to use the Rainmaker algorithm for anti-competitive purposes. Du noted that the hotels joined the pricing service at various times and were not obligated to follow the software’s pricing suggestions.

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    The DOJ, however, contests this interpretation. Per Bloomberg, the DOJ argued that even if hotels retained the option to deviate from algorithm-generated prices, this freedom does not absolve them of potential collusion. “To the extent the district court’s decision turned on a distinction between starting-point prices and final prices, it was wrong,” the DOJ stated. The department emphasized that agreements on starting prices, even with the freedom to adjust, can violate antitrust laws, particularly under the Sherman Act, which outlaws certain anti-competitive practices.

    Read more: Philadelphia City Council Advances Legislation to Tackle Rent Price-Fixing

    Additionally, the DOJ’s brief points to various forms of “concerted action,” which could encompass coordination between competitors or arrangements between the algorithm provider, Cendyn, and its hotel clients. For example, the DOJ suggested that if Cendyn pitched its product by indicating that it was used by competing hotels to manage room rates, this could serve as an implicit invitation to avoid price competition.

    Legal representation in this case includes Hagens Berman Sobol Shapiro LLP for the plaintiffs. Law firms defending the hotels include Skadden, Arps, Slate, Meagher & Flom LLP, and Kirkland & Ellis LLP, while Latham & Watkins represents Cendyn.

    The case, titled Gibson v. Cendyn Group LLC, No. 24-3576, could have broad implications for how courts interpret the role of algorithms in potentially anti-competitive practices, as the Ninth Circuit’s ruling may shape the outcome of other cases involving similar claims.

    Source: Bloomberg