Why Are Hotel Prices Skyrocketing?
HOTELS
With hotel prices hitting all-time highs across major travel destinations, you may be wondering why you’re suddenly paying so much more for accommodations. Luxury hotels charging up to $12,000 per night isn’t unusual, and even basic rooms have escalated to hundreds of dollars. But behind these inflated prices lies an unsettling revelation: hotels may be artificially keeping prices high through algorithms and strategic price setting. Let’s explore the story of hotel price-fixing, how algorithms play a role, and what it means for travelers looking for a fair rate.
How Hotel Prices Are Being Manipulated with Algorithms
In the digital age, price-fixing doesn’t require hotel executives to gather in smoke-filled rooms. Instead, advanced algorithms and data-sharing tools have become essential in coordinating prices across hotels without direct communication. For instance, in Atlantic City, several major hotel brands, including Caesars, Tropicana, and Hard Rock, are implicated in a lawsuit alleging that they collectively fix and raise prices using algorithmic software developed by Cendyn, a prominent tech company in the hospitality industry.
Cendyn’s software provides hotels with data-driven insights, suggesting "optimal" pricing to prevent competitors from undercutting each other. This sophisticated software essentially recommends prices based on an analysis of industry-wide data, creating an environment where hotels can keep prices high while minimizing the risk of price wars. With occupancy dropping from 87% in 2017 to 73% in 2022, the rising room rates, which jumped from an average of $108 to $178, reveal a 65% increase over just five years in Atlantic City alone.
Why Hotels Can Charge More with Less Demand
In typical markets, low demand leads to reduced prices. However, hotels that use Cendyn's algorithms manage to sidestep this fundamental rule. Even as occupancy rates fell, hotels were able to maintain or even boost revenue by setting higher prices. Essentially, fewer people may book rooms, but those who do end up paying significantly more, resulting in overall revenue growth. Atlantic City hotels, for example, saw a remarkable 40% revenue boost from 2017 to 2022 despite serving fewer guests.
This trend mimics what’s happening in the rental property market. In recent years, a similar algorithm, developed by a company called RealPage, has been under federal scrutiny, accused of conspiring with large property management firms to hike rental prices. RealPage, like Cendyn, traces its origins to the software company Rainmaker, which sold its property management software to RealPage in 2017 and its hotel management technology to Cendyn in 2019.
Expanding the Practice Beyond Atlantic City
The case isn’t limited to one city or one software platform. Another lawsuit claims that luxury hotels across 15 major U.S. cities, including giants like Hilton, Hyatt, Intercontinental, and Marriott, are leveraging technology from Smith Travel Research (STR) to coordinate pricing strategies. STR’s platform allows these hotel brands to share key data on room availability, pricing, and anticipated market trends, further aiding in uniform price hikes. One whistleblower has even likened STR’s platform to "oxygen or water" for luxury hotels, underscoring its crucial role in revenue optimization at the expense of competitive pricing.
Legal Ambiguities and Industry Justifications
The hotels maintain that their practices don’t violate antitrust laws because they’re not explicitly communicating with each other to set prices. Instead, they argue that Cendyn and STR simply provide “suggested” or “benchmark” prices, which aren’t legally binding. According to these hotel chains, each business ultimately chooses its own prices independently.
However, regulators, including the U.S. Department of Justice, argue that the Sherman Antitrust Act prohibits even indirect price-fixing methods if they result in a standardized, anti-competitive market. The act states that even setting a starting point for prices, without direct coordination, could still breach antitrust regulations.
What This Means for Travelers
For travelers, these algorithm-driven price hikes and alleged collusion mean fewer affordable lodging options. When large hotel chains have access to shared data on pricing and market trends, competitive pricing—a key driver of consumer choice—begins to erode. With a lack of genuinely affordable alternatives, many travelers are forced to either pay premium prices or reconsider their travel plans altogether.
How to Avoid Paying Inflated Hotel Rates
If you're looking to avoid overpaying for your next hotel stay, here are a few travel hacks that may help:
Book Directly with Hotels: Sometimes, hotels offer discounts, perks, or flexible cancellation policies if you book directly, which aren’t always available through third-party booking sites.
Consider Off-Peak Seasons: When demand is low, hotels may offer better deals, even in heavily impacted markets. Traveling during off-peak seasons can also give you more flexibility with room options and amenities.
Use Loyalty Programs and Credit Card Rewards: Many hotels partner with credit card companies to offer exclusive discounts or reward points. Consider using a travel rewards credit card to accumulate points or unlock perks like free breakfast, room upgrades, or late check-out options.
Explore Alternative Accommodations: If hotels are too costly, consider alternative accommodations like vacation rentals, boutique inns, or even co-living spaces, which may offer a more cost-effective and unique experience.
Check Prices Regularly: Hotel prices can fluctuate based on demand. Set alerts on booking platforms or use price-tracking websites to monitor rate changes and snag better deals.
A Call for Regulation in an Algorithm-Driven Market
The rising trend of algorithm-driven price fixing in the hotel industry sheds light on the unintended consequences of Big Tech’s growing influence on traditional markets. With hotels sharing and analyzing data to collectively keep prices high, the promise of a fair market for consumers appears to be under threat. Federal scrutiny of this practice may lead to more regulatory oversight, but in the meantime, consumers must navigate this landscape with caution and savvy booking strategies.
Understanding how these industry practices work can help travelers make more informed decisions and avoid falling victim to artificially high prices. As technology continues to evolve, staying updated on market trends and leveraging loyalty rewards may be the best way to find affordable travel options in a rapidly changing hospitality industry.