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Experts skeptical Strip hotels colluded to fix hotel room rates

Updated January 27, 2023 - 3:22 pm

A number of hotel operators on the Strip were accused of artificially inflating the prices of hotel rooms this week in a class action lawsuit. But several hospitality and business experts have expressed skepticism that the Strip hotels colluded.

The lawsuit, filed by Seattle-based law firm Hagens Berman, said a revenue management platform used by a majority of Strip hotels used real-time pricing and supply information data from competitors to design rate recommendations that “unlawfully maximize profits for its hotel operator users.”

The suit names Caesars Entertainment, MGM Resorts International, Treasure Island and Wynn Resorts Holdings as defendants and points to the companies’ dominant market share of hotels on the Strip, with the operators named controlling about 20 resorts. It also names Cendyn Group, a Boca Raton, Florida-based hospitality data analytics and software firm, and its subsidiary Rainmaker Group Unlimited, based in Georgia.

Amanda Belarmino, assistant professor at UNLV’s William F. Harrah College of Hospitality, said hotel companies rely on historic levels of pricing and analyze supply and demand to determine how much to charge for a room in a given time range.

She said data provided to hotels by Cendyn Group and Rainmaker provide either current rates that can be viewed on any hotel company’s website or historic data from previous time periods.

Regardless of what data was provided, Belarmino does not think the hotel competitors used that to set rates.

“I think it is a spurious argument to say that this information alone resulted in record-high room revenue,” Belarmino said. “Hotels make pricing decisions based on demand more than on competitor pricing. If the demand is not there, the room rates go down.”

An MGM spokesman said in an emailed statement: “The claims against MGM Resorts are factually inaccurate, and we intend to defend ourselves vigorously against these meritless claims.”

Caesars, Wynn and Cendyn Group declined to comment as well as the Nevada Resort Association. Treasure Island did not respond to requests for comment.

Record-high room rates

The Las Vegas Convention and Visitors Authority reported the highest room rates in history in April — when the NFL staged its draft on the Strip. The average rate that month was $173.63, with Strip rates averaging $187.72 a night.

But soon that record was shattered in September when it reached $187.18 per night and $199.49 for the Strip. And the first time the average rate exceeded $200 a night occurred the next month — a particularly robust convention month — when the average rate was reported at $209.89 and $225.69 on the Strip.

“Last year, we had unprecedented demand with the first full season for the Raiders without COVID-19 restrictions, a return of conventions, a return of, albeit limited, international travel, and an increase in concerts that we had not seen before,” Belarmino said. “When prices are too high, customers generally talk with their feet but that did not happen, indicating that the demand was there.

“Let’s also remember that gaming revenue was at a record high, which indicates two things to me. First, there were a large number of casino guests which means that the hotels had less rooms to sell as they were being taken up by the casino segment. Second, the consumers going to Las Vegas had higher disposable income to spend money on gaming, were less price sensitive, and were willing to pay those rates,” she said.

Josh Swissman, founding partner of Las Vegas-based Strategy Organization, said he understands how some could get the impression that resorts are sharing their rates because its conspicuously listed on their respective websites. Yet, he finds the practice “highly unlikely.”

“The way the city works, demand exists across the entire city so as one company’s inventory is going down, so is another’s,” Swissman said. “If that’s not the case, such as at a big convention with Caesars and not at MGM, then Caesars should be able to price accordingly outside whatever the broader demands of the city are. They can adjust rates up if there’s a big convention. So you have to have that functionality to change pricing regardless of the broader demand.”

How it works

According to the complaint, hotel operators provide Rainmaker Group real-time pricing and supply information that is then fed through the software firm’s algorithms. The result is that operators receive pricing recommendations “specifically intended to raise profits for Hotel Operators while discouraging them from maximizing occupancy of hotel rooms,” the complaint stated, adding that this encouraged operators to keep rooms empty rather than offer lower prices to boost occupancy.

The suit described three types of algorithms: GuestRev, a casino-hotel market specific daily pricing recommendation; GroupRev, a forecasting algorithm for group demand; and Revcaster, a rate-shopping tool meant for monitoring and responding to competitor pricing.

Hospitality experts say software like this is commonly used.

Jeff Beck, professor at Michigan State University, said there have long been reports that show a market’s historical pricing in aggregate, and future-facing price points can be found on a company’s website or through other aggregate reports and software.

“It’s not just Las Vegas,” Beck said. “You could argue that the airlines are in a similar type of circumstance — they all have their own software packages.”

Jonathan Hersh, professor at Chapman University, said companies using the same software does not necessarily indicate a violation of antitrust laws. But it could be a violation if there was coercion to use the platform, or if operators agreed to act as one to make pricing decisions, for instance.

Algorithms are programmed to an objective, he said, and can be given flexibility to achieve that goal such as sending specific discounts or ads to targeted customers. It’s possible that it could pursue its objective at the expense of something not thought of when it was programmed, he said.

“I think the larger issue here is that algorithmic pricing, in general, has been shown to extract a lot of value for these companies at the expense of the consumers,” Hersh said.

Belarmino of UNLV said she doesn’t expect the lawsuit to result in an end to the use of computerized revenue management systems.

“I do not foresee this lawsuit resulting in the end of revenue management systems for the simple reason that collusion means making decisions together,” she said. “Looking at data and making independent decisions is not collusion. It is the same pricing decisions made every day in every business around the world.”

McKenna Ross is a corps member with Report for America, a national service program that places journalists into local newsrooms. Contact her at mross@reviewjournal.com. Follow @mckenna_ross_ on Twitter. Contact Richard N. Velotta at rvelotta@reviewjournal.com or 702-477-3893. Follow @RickVelotta on Twitter.

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