California passed criminal and civil liability for ‘shared pricing algorithms’ and ‘coercion’ and this is going to have a big effect on hotel pricing. California is one of many states cracking down on use of AI in consumer pricing.
Delta Air Lines has gotten a lot of news coverage for its use of artificial intelligence in pricing. Delta says that by the end of the year, AI will price 20% of its tickets. But Delta – and other airlines – will not be affected by these laws.
The Airline Deregulation Act bars states from enforcing laws “related to a price, route, or service of an air carrier.” Use of AI in pricing is clearing related to price and the Supreme Court has consistently knocked out state regulation on these grounds.
Hotels, though, don’t get federal preemption of state regulation. They are going to have to change their practices in California, and tools they use will need ‘California versions’ that create paper trails demonstrating compliance. (California forces companies to create a lot of metaphorical paper.)
- If a franchisee’s revenue management system is taking in competitor rates and availability and nudging a property’s rates toward the model’s output, it’s going to be within the sights of AB 325.
Then we look at the coercion prong of the act. If a brand penalizes or conditions benefits or display ranking of the franchise hotel on adherence to recommended rates or terms that’ll be problematic. So I’d expect contracts and revenue management system user interfaces will need to be adjusted so that deviations are made clearly permissible (even encouraged) to avoid California penalties for declining algorithmic recommendations.
- Online travel agency tools that recommend or pressure hotels to post specific rates and make inventory availabile for better placement — when the tool uses competitor hotel data — are exposed under the coercion prong even though the OTA itself isn’t a hotel competitor.
The statute’s definition turns on use of competitor data and “otherwise influence.” Even aggregated competitive set signals can be argued to “influence” price. Software vendors will need to document exactly what competitor signals the tool consumes and to provide audit trails showing independent decisionmaking by the property.
“Autopilot” pricing modes and hard to override defaults will need to be deemphasized or accompanied by explicit “independent judgment required” prompts as well sa logs of manual deviations. That evidence matters both to avoid conspiracy under the act and to rebut any inference of coercion.
One hotel pricing insider tells me that this will impact “Hilton and Hyatt more than Marriott..as they use the same iDeas platform for pricing and set floors but most hotels let the system auto-price.”
So much for a notion of a “free market,” then.
How will this be enforced? Laws and legal settlements against resort fees aren’t enforced already.
Expect lawsuits against this. While I am against collusion in areas like pricing apartments, which is rightfully being restrained, I disagree with it with respect to hotels. The price SHOULD be influenced by competitive factors. Rates others charge and occupancy patterns are legitimate factors to consider in setting rates. Also there are many hotel options so I would argue none rise to the level of monopolistic pricing
In general, reasonable ‘common sense’ regulations are good for healthy competition, workers, and consumer protection. Unfortunately, our present-day tech-oligarchs have all-but captured (by preventing such regulation) this industry, and as-such have kept most of the wealth to themselves. Much of that may be coming to an end soon, if and when this ‘AI’ bubble (like the dot-com) bursts. Anyway, at least California (and often NY, and the EU) are trying.
@Denver Refugee — I presume you were mocking that notion. You (and others) know that we do not have a ‘free market’ in a vacuum. There are often guardrails, lest we forget why they exist. We want to avoid monopiles, regulatory capture, and corruption, as each hurts growth and innovation, as much, if not, more so than any so-called ‘rules.’
@Nick Thomas — ‘How’ enforcement happens is not the question; ‘whether’ there is a will to do so is often the question. As with other ‘laws,’ say, ‘speed limits,’ there can be ‘officers’ who pull you over when above the limit, address violation, pursue penalties against you. They have to prove their case, it takes time, effort, etc. But, there is enforcement, as there would be here. There’s a metaphorical paper trail with digital anything, so, if they need to ‘find’ it, they will, then prove it.
@Retired Gambler — Yeah, we’re a litigious society. Anyone can sue anyone for anything, and many will try. Perhaps, the oligarchs have paid their ‘gratuities’ to those judges and will get their way. See Snyder v. United States, 603 U.S. 1 (2024). Sad.
AI is evil shit we don’t need. This will reduce us to just a number. Get ready for the overloads who are really gonna run the show.
Great. Laissez-faire capitalism without meaningful regulation is essentially a recipe for entrenched oligarchy. Guarantee we’re all at best upper middle class on here, we need to stop acting like temporarily disadvantaged 1%ers and more like the people getting squeezed by the people on top
AI is evil and we don’t need anymore tech overlords. This will eventually reduce us to socialism!
@Wake up and smell the exploitation — Preach!
@Joanie Adams — AI without regulation is leading us to late-stage capitalism, if not tech-bro feudalism, not socialism. Or, were you suggesting that such a horrible outcome will eventually lead to people rising up to demand better, hence, socialism, eventually.
I deal with this type of regulation at my job. I think what people need to realize when AI and pricing are discussed is that many of these pricing models are using both public and (even more importantly) private and proprietary data to raise prices across competing brands. So, the reason for a lot of the regulation is that it’s price fixing, which is illegal under existing law (usually the Sherman Act). So, it’s not that AI is being banned willy-nilly, it’s that AI has turbo-charged the ability to violate existing law.
I’ll take what progress I can get on this front. Nice move by California.
“AI is evil and we don’t need anymore tech overlords. This will eventually reduce us to socialism!” – Joanie Adams
This is the confused statement of an underinformed person. Reduce us to socialism? Explain exactly what you mean by that. It’s more accurate to say that this will eventually reduce us to a totalitarian society.
And the overlords are already in charge. They have been for… a very long time. If anyone still thinks airlines, hotels and other travel stuff are interested in providing a great product for the public good, forget. We’ve proven we’ll accept abuse and pay good money for it.
@WearyWatchdog — 100%.
AB 325 doesn’t just cover room pricing, it also counts employee and contractor pay as part of “price.” That means even wage and scheduling tools could fall under the law if they use competitor data to set pay bands or staffing levels. There’s no exception for public data either, so benchmarking against visible wages isn’t automatically safe.
Hotels also need to think about discovery. Revenue systems that pull in competitor rates or OTA signals could get flagged for “tacit coordination.” Vendors who can show independent decision making or offer single-tenant setups without competitor data will be in a stronger spot.
Airlines may dodge state rules because of federal preemption, but they still face possible DOJ attention for “algorithmic collusion,” like we’ve seen in the RealPage rental cases. Expect similar claims against hotels once AB 325 kicks in.
And OTAs aren’t off the hook either. Programs that tie visibility or ranking to “competitive” pricing could easily be viewed as coercive if they rely on competitor data.
It’s a brave new world, folks.
@Mike Hunt — So, I take it, you’re only concerned about left-wing abuse of data and regulation, (ahh, California!), but, let’s be honest, the ‘woke’ mob never really had power, and it’s only #47 who is going after his perceived enemies using the power of the state (oh, and he’s also the most socialist president ever, forcing Intel to sell 10%.) Let’s not fear-monger the wrong villains. (Ahh, rules! Ahh!! Tyranny!!)
@1990 – I actually wasn’t making a political point at all. My comment was about how the text of AB 325 is written and how it could be interpreted in practice. The law’s language is broad enough that it might unintentionally pull in legitimate tools used for wage benchmarking or inventory optimization, which is why legal analysts are watching it closely.
Every administration, regardless of party, wrestles with how to balance innovation against market fairness. California’s approach here just raises interesting legal questions about antitrust liability and data-sharing boundaries. My focus is really on how companies adapt to that framework, not on which side of the aisle wrote it.
@Mike Hunt — I respect your response and analysis here, too.