Thoughts on the CoStar Class Action Lawsuit — Photo by Created by HN with DALL·E

As someone who is a huge fan of hotel data, I had long used STR’s resources (as well as others) to maximize revenue at the hotels where I was working. Since transitioning into education about 10 years ago, I seem to also work STR’s reports into many of my classes – they’re just so useful! I saw yesterday that there is a new lawsuit that is working to connect STR to anticompetitive pricing. As I am familiar with all the companies listed in the lawsuit and really enjoy looking at hotel data, I thought it might be a fun read – and I was right!

I just finished reading the 118-page lawsuit and found it incredibly interesting. I’ve included a little background on the case and my thoughts below.

CoStar’s Involvement in the Lawsuit

They are involved mostly because STR (a subsidiary of CoStar) collects and disseminates data that can be used to drive higher prices and only gives that info on a “give-to-get” basis – meaning if you don’t provide data, you are not able to receive data. Specifically, the STAR Report, Forward STAR Report, and the Hotel Data Conference seem to be the bulk of what the lawsuit claims can be used to be anticompetitive.

From the lawsuit on Reports: “makes it highly likely to produce anticompetitive effects because the scheme (1) involves current and forward-looking exchange of information; (2) focuses exclusively on price and supply information; (3) allows Defendant Hotel Operators to create customized data cuts, including the exact competitors they want to monitor; and (4) is available only to hotels who shared data with STR.” (Lawsuit Page 5)

From the lawsuit on the Data Conference: “STR-hosted Hotel Data Conference teach Hotel Operators how to use STR reports to charge higher prices. Since 2009, STR has hosted the Hotel Data Conference, or “HDC,” a yearly sold out event staple in the hotel industry.” (Lawsuit Page 42)

Focus of the Lawsuit

The lawsuit only focuses on overcharging in “Luxury Hotel Metropolitan Markets”, meaning not all brands and not all locations that utilize STR’s products are included. The lawsuit specifies “Luxury hotels here were identified based on hotels identified as having four or five-star ratings on Kayak in the fifteen metropolitan markets identified below.” (Lawsuit Page 62)

My Thoughts on the Focus

This narrow focus seems strange to me, and the way it was defined made me feel like they had to find the data to fit the allegation. The definition of luxury is not consistent with anything I have ever seen when working and isn’t consistent with what I teach.

I found the focus especially interesting because STR actually defines what qualifies as a luxury hotel. The main plaintiff, Jeanette Portillo, indicates that she overpaid when staying at a Curio Collection by Hilton and a Hilton Hotel (Lawsuit Page 10). But, neither of those brands are considered luxury (both Curio and Hilton are defined as Upper Upscale). In fact, only two of the seven plaintiffs stayed at a luxury hotel: Daniel Smith stayed at a Luxury Collection (Marriott) and Daniel Kassl stayed at the Langham Chicago (Great Eagle Holdings).

Now, if you don’t use STR’s definition for luxury then I guess you can use stars (as mentioned in the lawsuit). There is only one company though that offers legitimate hotel stars and that is Forbes (sorry That being said, the only Forbes four-star or five-star hotel that a plaintiff stayed at was the Langham Chicago. In addition to not utilizing standard definitions of luxury, the inclusion of a Courtyard by Marriott stay in Kansas City (Lawsuit Pages 11-12) seems like a real red flag when making the case that these are luxury hotels.

Use of STR Products

I will say that when it comes to STR’s data, particularly the STAR report, they are helpful in making pricing decisions. But as I tell my students, “You can increase your ADR by raising prices, but also by eliminating discounts.” An elevated market ADR does not mean you are charging higher prices, or that you can charge higher prices. It just means that the average price that people are paying is higher.

The aftermath of the pandemic did bring elevated prices, but I think that the bulk of the blame actually lies more with academia and more sophisticated hotel managers and less with available data. Much of what is published at universities gets overlooked by the industry, but there were two studies that were all the rage during the pandemic: "Competitive Hotel Pricing in Uncertain Times" and "Successful Tactics for Surviving an Economic Downturn: Results from an International Study" The main points of this research were that lowering rates was an ineffective strategy in the long run and it was better to keep rates high. This, I believe, was the driving force behind the large rate spikes experienced from 2021-2023.

This academic research directly contradicts what the lawsuit says, “In a competitive market fraught with uncertainties of price competition, hoteliers generally find it advantageous to lower their prices, increase their sales, and consequently expand their market share.” (Lawsuit Page 6) I believe this statement is inaccurate and feels to me like the opinion of someone who has not worked in hotels at a high level or who is an unsophisticated hotelier.

Further, the concept that selling fewer rooms at a higher rate is more profitable than selling more rooms at a lower rate is not exactly a secret. It’s how profit works, and if a hotel manager doesn’t know that they probably should not be in management.

The lawsuit also mentions that data from STR can be isolated, “Confidential Witness 5 (‘CW 5’) added that, based on a strategic selection of custom cuts, some hotels could deanonymize STR data. For example, CW 5 explained that if a property has seven hotels in its competitive set and wants to deanonymize data for one of those hotels, ‘I would partner with another hotel close to me that would pick six of the seven I had. And what you do is subtract six out of the seven to single out the hotel that you wanted to measure,’ CW 5 said. ‘It’s easy to do,’ CW 5 added.” (Lawsuit Page 8)

This idea seems a little complicated, and I have never heard of something like this happening. If I really wanted to know the data from another hotel, I’m pretty sure I would just pay a front desk agent at the other hotel to get it for me. I can’t imagine how it could be “easy” to talk another hotel into changing their comp set information so that you could meet with them each week and mathematically eliminate all the other hotels.

Missed Obvious Connection

When I came across Hilton CEO Chris Nassetta’s name in the lawsuit, I perked up because I thought the lawsuit was going to get interesting. But then I saw it was just a quote from him about algorithms. I won’t mention what I was expecting to see, but it wasn’t a quote about algorithms.

Final Thoughts

I’m interested to see where this lawsuit ends up. I can see how data and conferences can be used to set prices. That being said, most of these hotels are probably franchises and not really connected to the parent companies other than using their names and systems. The average hotel revenue manager is not going to hotel conferences. But on the other hand, the data STR provides, used in conjunction with automated revenue management systems, poses an interesting question about how much the machines are communicating and setting prices, with or without the knowledge of the brands.

Regardless of the outcome of this lawsuit, perhaps it is a good time to reassess where we are. As more data becomes available and more automation occurs it is probably in everyone’s best interest that we take a step back and determine if what is occurring is legal, ethical, and ultimately in the best interest of the guest.

Tucker Johnson
Instructional Associate Professor - Conrad N. Hilton College of Global Hospitality Leadership
University of Houston