Overview
When do companies using the same pricing algorithm violate the antitrust law? Despite the new technology, the answer seems to center on the classic issue central to a hub-and-spoke conspiracy: is there an agreement along the rim?
In Gibson v. Cendyn Group, LLC, class plaintiffs accuse Las Vegas hotels of fixing prices via a subscription software program provided by Cendyn Group. This software suggests prices for hotel rooms and conference rooms via algorithm, relying in part on publicly-available competitor pricing data scraped from the web. The accusation was that this created a hub-and-spoke conspiracy, with Cendyn as the hub, the hotels as the spokes, and the agreement among the hotels being evidenced by the hotels' subscribing to and renewing their subscriptions to Cendyn's services
But the Court disagreed for three reasons. Most importantly, the complaint didn’t allege that Cendyn's software recommended prices based on competitor hotels' confidential pricing information. This was in contrast to the In re RealPage, Inc. decision, another pricing-software-hub-and-spoke conspiracy, there in the residential apartment market. The RealPage complaint alleged that the illegality derived from defendants' "exchange of otherwise confidential information between competitors through the algorithm[.]" Unlike in RealPage, the Gibson court found that there was no allegation that the pricing recommendations Cendyn's software generated relied on competitors' confidential pricing data. Instead, the recommendations appeared to be individualized, with no reference to competitor pricing information other than publicly available data gathered from the web. The plaintiffs argued that Cendyn's software inherently relies on confidential pricing information of other companies because the algorithms improve their past performances over time through machine learning. But machine learning does not facilitate the sharing of one hotel's confidential information with other hotels. This was a "fatal defect" in the complaint, because it showed that the alleged hub-and-spoke price fixing conspiracy had no rim, that is, that there was no quid pro quo agreement among the hotels.
Second, Cendyn's software only recommended prices; it didn't set them. Hotels allegedly often overrode the software’s price recommendations. If the hotels had agreed with Cendyn that the software would set their prices, the court reasoned, it would have been easier to prove that a "rim" of horizontal agreements existed between the hotels to fix prices. But the algorithm did not bind the hotels.
Lastly, hotels began subscribing to Cendyn's software at different times over a decade—implying independent conduct rather than tacit agreement. Plus, the software had scraped the web for competitor prices only since 2015, after most hotels had already subscribed. The court noted that the antitrust laws do not prohibit businesses from factoring publicly-available competitor pricing information into their own decisions.
Comparing RealPage to Gibson, it appears that courts may look for more than just use of a common pricing algorithm to find an antitrust conspiracy, because even in a hub-and-spoke configuration, there still needs to be something supporting the existence of an agreement among all of the alleged conspirators. Without that, there is no horizontal agreement to give rise to an antitrust violation.
