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This week’s monopoly round-up has lots of news, as usual, including some right-wing support for Lina Khan, new Republican enforcers joining the Federal Trade Commission, and a return of important price-fixing allegations against Google and Facebook.
But I want to start with an antitrust case alleging price fixing across the hotel industry. One thing that bugged me over the past few years is that the cost of hotels has skyrocketed. It’s so bad that I have significantly curtailed my travel, simply because I don’t like the high prices, junk fees, and associated nickel and diming.
It turns out, believe or it not, that hotels are a bit unique in the travel area. From 2021-2022, prices across the economy blew out, as people had money to spend after Covid. This was particularly true in the travel sector, as hotels, airlines, and rental car companies cut their offerings and then found massive demand for services. At their peak, airline prices jumped by 22%, rental car prices by 78%, and hotels by 17%.
In the airline industry, competition, aided by merger challenges by the Antitrust Division, has forced prices down, not just from post-pandemic era highs, but actually 3% below where they were prior to Covid. Rental car prices have dropped by about 30%, though they are still up above pre-pandemic levels. Both of these sectors are consolidated, so the declines probably didn’t happen as quickly as they should. But hotel prices, mysteriously, are still at their post-pandemic peak, and hotels aren’t nearly as consolidated as airlines or rental cars. I mean there are family owned hotels.
This dynamic doesn’t, on first blush, make sense, and would seem to cut heavily against the greedflation theory of big business. Why has the profit share of the economy gone up in sectors that don’t seem to be particularly concentrated? This suit answers that question, by showing these sectors are concentrated, not within firms, but across firms, who are tied together with software and consulting conspiracies. It’s about real estate data giant CoStar, which owns a data sharing firm called Smith Travel Research (STR).
STR, according to the suit, facilitates collusion among hoteliers. “Competitors in the luxury hotel industry,” says the complaint, “have agreed to continuously share their detailed, audited, competitively-sensitive information about their prices, supply, and future plans” with the goal of making sure they can each get their “fair share” of revenues.
The software firm gets data from each of its customers, and then sends out reports on what its rivals are charging, as well as recommendations to raise prices, even at “the expense of occupancy.” At STR conferences of hoteliers, participants encourage each other to raise prices, with speeches encouraging them not to be “afraid to take risks” on charging high hotel rates. Since “they are informed about their rivals past actions and anticipated strategies,” they don’t need to worry about losing market share.
In each report, STR distributes a “report card” for hotels that indicates their performance relative to competing hotels in their competitive set. STR uses indexes to evaluate performance for occupancy, average daily rate, and revenue. “An index of 100 means a hotel is capturing a fair share.”
A classic sign of monopolization is that prices are going up even as the number of rooms occupied are going down. As Alex Cisneros, an executive for Red Roof Inn put it, “Red Roof’s franchisees for the most part are making more money with less occupancy. Red Roof is now providing more data to franchisees to educate and get them comfortable commanding higher rates.”
STR has as customers almost all big players in the luxury hotel industry, such as Hilton, Loews, Hyatt, Inter-Continental, Marriott, Omni, etc. As one corporate insider put it, “STR to the hotel industry is like oxygen or water. You just have to have it.” Its next biggest competitor is estimated at one fortieth the size. One customer publicly said, “I think STR has become a household name, a staple with hotel management companies. I’d be surprised, or let me say differently, I am surprised when I come across a hotel that does not contribute their data.”
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The case is only about the luxury hotel market in 15 cities. (In case you’re curious, they are Austin, Boston, Chicago, Denver, Kansas City, Los Angeles, Miami, Nashville, New York, Phoenix, Portland, San Diego, San Francisco, Washington D.C. and Seattle.) Yet, there’s no reason to assume luxury hotels represent the extent of the collusion. There’s another case in Las Vegas where all the major casinos - Caesars, MGM, Treasure Island, and Wynn - are using a software package called Rainmaker to fix hotel prices by sharing information.
And similar kinds of information sharing or tacit collusion are happening among meat processors, large landlords, and online sellers, and likely in many other areas. Judges are often confused by these cases, with some seeing such sharing of competitively sensitive information as a clear conspiracy that falls within the Sherman Antitrust Act, and others wanting to see some sort of formal agreement.
This week, the Federal Trade Commission and Department of Justice Antitrust Division filed a brief with the court in Las Vegas clarifying antitrust law, asserting that yes, information sharing through software can be price-fixing.
After all, if courts don’t accept that price-fixing can happen through algorithms and AI, and can happen tacitly, then every industry is going to adopt such systems. For instance, many people saw that Wendy’s CEO promised to try dynamic pricing, before backtracking. Well Wendy’s isn’t an outlier. Over 100 restaurant chains are using the services of “Los Angeles-based Sauce Pricing — a startup backed by founding members of Sweetgreen, Uber, Airbnb and several private equity firms” to find ways of hiking prices, according to a blog post on its website.
Sauce Pricing has a ton of data on restaurant demand, and it’s only a short leap from Sauce helping its customers use their own data better to Sauce helping its customers engage in tacit price-fixing, should judges warp the Sherman Act to allow it. Hopefully, the DOJ and FTC shaping the law will discourage this kind of activity. That said, this week we saw record high corporate profits, long after they should have declined. And persistent high profits suggests collusion across the economy.
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