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.