And what exactly are the defendants alleged to have done to compromise free trade and unfairly constrain the competition? Apparently, the various parties created a marketplace monopoly by buying and using the same revenue management system at the same time.
Uh-oh... I feel an information technology crisis coming on. It feels like we are stuck in a quandary – and a philosophy quiz – being imposed on us by the technology of the 21st Century. If that’s the case, then let’s approach this situation academically. If AI is the hottest topic in information technology, then the hottest new side effect is involuntary involvement. More realistically sinister than an AI-powered “Terminator” is an AI-powered “Colluder,” the unseen handmaiden of artificial intelligence that leads us into temptation but doesn't deliver us from the evil of class action. Of course, you can hear the objections of the innocent being led astray: where’s the crime in buying the same software that serves other successful locations that select the same product, without any pre-agreement, interaction, or maybe even knowledge? And if that software produces the result that we expected, which justifies our purchase of the system in the first place, then what harm has been done? It can’t be against the law if no harm was intended.
Hold on one second, there, Perry Mason – maybe it can be against the law, based on the way that our laws are structured. Those of us who aren't American jurisprudence specialists, but who watch a great many Law & Order reruns, will be quick to tell you that you must have a motive to be guilty of a crime. The act of harming another person with malice and premeditation is vastly different from committing the identical act purely through accident or oversight. That many hotels in the
same area are installing the same software to produce the same expected result isn't a crime of intent – it’s a smart business move and the proof of that is the success of a product that delivers as promised.
So, we must ask ourselves one deeper question: What is the intent of revenue management software? I’m not asking about a particular brand or product, I’m asking about the science of revenue management, which is pretty damn scientific and way too complicated for mere human contemplation. But the answer is an easy one: we seek “rate optimization.”
And what does rate optimization involve, pray tell? That’s an easy answer as well: we are rate optimizing when we sell the proper inventory units at the proper price to produce the highest possible margin on the sale. If all that seems prim and proper, then we are behaving with premeditated profits in mind and we are working to ensure that we are competitively priced to get our fair share of the market. We do so by using the best tools of the trade, as recommended by their manufacturer. There is still no evidence of any crime here. Indeed, is this not American Capitalism at its finest?
Without a doubt. But we’ve also seen a few “attitude” issues with good old American Capitalism in the past: it wasn’t always known for playing well with others, it never was any good at sharing, and had, at times, the potential to be a bit of a bully. I’ll now circle back briefly to that “rate optimization” thing to make sure that we’re not letting the bully back into the schoolyard. For that there is one final question: What happens if producing the highest margin on sales creates the net effect of having the entire market offer their “competitive” products at or near the same price?
Well, a proper revenue management system certainly isn’t going to recommend that you take less money for your room, unless it’s so significantly less that it makes up the difference by dramatically increasing the number of units sold. That strategy isn’t going to be practical or realistic under all sorts of market circumstances, so the most likely outcome is the one that the FTC sees today: virtually all accommodation providers in the same market produce what is essentially the same price for the same product for the same day for the same buying segment. Isn’t that the dictionary definition of “price setting”?
Without a doubt. The law expects that non-monopolized competitors would compete with more attractive price/value propositions, and undercut the competition to gain market share, thus putting the buyer on equal footing with the seller. In a monopolized market, the advantage goes solely to the sellers, by virtue of them working together to set the prices and then holding the line.
Using advanced technology to solve mathematics problems isn’t the issue – it’s the means to produce the result. But when you apply those results – especially when many are using the same proprietary algorithms applied to the same rate science – you have created a de facto monopolized market, whether you meant to or not. And that’s when government agencies come knocking.
Add another consideration to the mix: advanced revenue management systems are quite good at gathering competitive data. As AI gets progressively smarter and creepier, so will the stifling results of what is being viewed as the underhanded tactics of the electrically powered.
And note to self: by accepting the business intelligence that your application both offers and actively consumes, you likely made yourself an aggregated, anonymous donor in the process. I'm not alleging that systems are sharing confidential data inappropriately; we’ve all openly shopped the competition one way or another since the dawn of time. I'm suggesting that the well-intentioned use of a technology that is steadily becoming more pervasive and more deeply self-directed can have severe unintended consequences.
Factor in the speed and trajectory of AI development, and Creepyville, here we come – if you still have any available rooms at any price. Once upon a time, applications that accurately solved complex business challenges and produced the anticipated results for all users were simply considered “accurate.” But another paradigm bites the dust, and another one takes its place: applications that result in market competitors doing the same thing in perceived lockstep doesn’t so much signal a wealth of accuracy, but rather the limitation of fair commerce. It’s time for the hospitality industry and the government to decide whether shared access to big data constitutes the
power of sophisticated technology or the oppression of the marketplace. It’s also time for us to rethink the impact of a self-directed information web that literally draws us into its own web of suspicion and conflict. C’mon, American Capitalism – you’re better than this daytime drama. Let’s rise to the challenge before we’re doomed to unplug!
