In the past, many businesses hired employees whose role was deciding which prices to charge for their goods or services. At one point, organizations largely set prices based on their costs, though over time they tend to look at their competitors and set similar prices. If, however, management from multiple companies went into a room and determined prices, this would be price-fixing.
Price fixing is illegal. In many countries, we would not allow different companies to work together in a way that might reduce competition or take advantage of consumers. However, that might be a struggle in the future as we find companies using various services to help them manage their systems.
In this case, a few different Las Vegas hotels used the same company to help them decide how to price their rooms. Rainmaker is a revenue management platform, which uses lots of data to help hotels price their rooms in a way that maximizes their revenue. That sounds great, but if this company is successful and many of their clients are in the same location, this is really a way of sharing data by proxy. The hotels are being sued because of their use of this platform.
This one of the problems (or advantages) of lots of data. It allows information to be drawn out of data that wouldn’t otherwise be obvious. Certainly, lots of companies look at their competitors and make decisions based on what they see. I’m certain there are lots of people inside airlines constantly checking the prices of their competition. However, they are gathering this data independently and making their own decisions. If Rainmaker were used by American, United, and Delta to set prices for flights, I imagine many would see this as an anti-trust violation.
Big data is powerful. It can help give an organization an advantage over its competition. This is one reason lots of companies hire data professionals like us; they see data as a very valuable asset. However, in this case, I feel that one company selling this data, or rather the conclusions, to competitors is a problem.
I expect more problems like this in the future as smart people look to harness the power of data and sell their services to competitive companies in many industries.
Steve Jones
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Question. Is the problem that Rainmaker is sharing info from Hotel A with Hotel B or is that because Rainmaker gets data from multiple hotels it’s able to then use that to tell other hotels how to price their rooms? I read over the articles you linked in the post and it’s not clear (at least to me) where the sharing is taking place.
Another reason I ask is because my company does property management, primarily residential such as apartments, townhomes, lofts, etc. One of the things we do that I personally have issues with is that instead setting the price of a unit based on what we believe to be a optimal market value or rate, so that occupancy stays as close to %100 as we can while making as much profit as we can, we send rental data to another company that takes that and uses some algorithm to determine the optimal price and pushes that back to us. A company that does this with numerous property management companies. This means the exact same unit’s monthly rental price can change daily.
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Rainmaker gets hotel prices from multiple hotels (A, B, C, D), which might be from multiple brands/owners. They then set prices designed to make money for the owners, which is essentially collusion. This equates to price fixing.
If Hotel A and Hotel B and Hotel C got in a room and decided to set prices, they’d be arrested and charged. If they all hired you and one at a time went in a room with you and then you gave them the prices to charge, the same thing. It’s collusion by proxy.
These service companies, who are trying to build a business by helping owners will find they are going to run afoul of laws if they take data from multiple owners in an area and use that to set a price, they’re colluding. They need to ensure that if offering a service, they are not gathering information from competitors and using that to set prices. You would need to set pricing based on that property’s data alone.
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Wow. So if I read this right teh company we are using could be running afoul of the law if they are determining our prices by including pricing from other property management companies.
Thanks Steve
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I’d read it that way. A sharp lawyer might start signing up tenants for a class action. I’m not sure what your company’s liability is, but I can see landlords being in trouble.
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Thanks Steve
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I’m already passing teh story/info along to the person here is the one that deals with this company I am referring to./
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FYI – After speaking to the folks in my company who work with the vendor it turns out that vendor is also facing a similar lawsuit. Apparently most of the revenue mgt companies are./ I tried to explain to our guy why what the Revenue Mgt entities are doing is not the same as before where each prop mgt company would check their competitors advertised prices and maybe get occupancy numbers. That the data the get from us is far deeper and more detailed, the kind that would be shared amongst companies collaborating.
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