The Department of Justice says a federal district court earlier this year made a legal error when it dismissed a pricing algorithm antitrust case against Caesars and other hotel companies that operate on the Las Vegas strip.
In May, Judge Miranda Du of the U.S. District Court in Nevada said customers failed to show the hotels engaged in a conspiracy to fix prices by using the same price setting software, from a company called Cendyn Group, which was also named as a defendant in the lawsuit.
In dismissing the case, Du said price fixing among the hotels is implausible because they began using the software at different times, never exchanged non-public information with one another and were free to deviate from the pricing recommended by the software.
“If they all agreed to outsource their pricing decisions to a third party, and all agreed to price according to the recommendations provided by that third party, it would be plausible to infer the existence of a collusive agreement to fix prices,” Du said in her May ruling siding with the hotel companies and the software provider. “But the allegations that could plausibly support that sort of inference do not exist in the [complaint].”
The plaintiffs appealed to the U.S. Court of Appeals for the 9th Circuit.
In an amicus brief filed with the 9th Circuit Oct. 24 in support of the hotel guests, DOJ says Du’s ruling is “based on an incorrect view of the law.” It’s not necessary for the hotel companies to fix prices to be in violation of Section 1 of the Sherman Antitrust act; it’s enough that they agreed to use the company’s software, which uses artificial intelligence trained on pricing data provided by the hotel companies.
“An agreement among competitors to use certain pricing algorithms to generate default or starting-point prices is per se illegal even if there is no further agreement on final prices,” DOJ says.
Section 1 of the Sherman Act applies to any effort by companies to conspire to restrain trade, DOJ says. In the early days of the law it was people meeting in a “smoke-filled room” to conspire on prices and later it was people colluding in online chats. Today, with AI-assisted software available to help companies set prices using algorithms, it’s the willingness of companies to share data with the software company for use in the algorithm that creates the collusion.
“When competitors use the same algorithms to guide decisions of competitive significance, their doing so can raise antitrust concerns,” DOJ says.
Arguments over whether algorithmic pricing violates antitrust law have exploded in the last year. A similar case, against hotels in Atlantic City, was dismissed by a New Jersey federal court in September, on grounds similar to the Las Vegas case. And DOJ has gone after a real estate software company, RealPage, for the anticompetitive effect of its pricing software on multifamily rental housing markets.
Legal scholars are mixed on whether companies, just by virtue of using the software, can be said to be colluding on pricing.
Shubha Ghosh, a Syracuse University law professor, says DOJ is stretching antitrust law to say companies are conspiring to restrain trade without ever entering into an agreement with one another to charge the same price for something. “An agreement to fix price requires the meeting of human minds intending to act anti-competitively,” he has said.
In its brief, DOJ says it’s crucial for the 9th Circuit to get this hotel case right. “This case is the first of its kind to reach a U.S. Court of Appeals, [and] it will establish precedent that will affect similar cases going forward,” it says.
Should the court affirm that it’s okay for companies to use software that sets prices for them, even if companies have flexibility not to use the price recommendations, settled antitrust principles will be contravened, DOJ says, and “stymie meritorious antitrust claims involving pricing algorithms by taking well-established legal theories off the table.”
