Hotel giants under the spotlight over dynamic pricing

The Competition and Markets Authority (CMA) has launched an investigation into Hilton, IHG Hotels & Resorts, and Marriott International, along with analytics provider CoStar, over the suspected sharing of competitively sensitive information, according to a government press release.

The investigation is looking at whether the hotel groups used a data tool called STR to exchange information in a way that could reduce competition. At this stage, the CMA has not concluded that any laws have been broken. But the investigation could indicate increasing attention on algorithmic pricing and data-sharing practices from regulators.

It’s a reminder for independent hotels, guesthouses, and small hospitality operators that while dynamic pricing is allowed, it must be transparent, compliant, and justifiable in terms of your own commercial reasons.

What is the CMA concerned about?

It’s relatively standard practice for hospitality businesses to use software to adjust room rates in real time. These systems alter prices in response to demand, seasonality and competitor pricing to ensure beds aren’t left empty.

Used properly, this technology can benefit consumers by offering more responsive pricing and clearer availability, even helping hotel guests score a deal during low-demand periods. But competition law draws a line when rivals share sensitive information that reduces uncertainty about each other’s pricing decisions, weakening competition.

For example, say Hotel A sees that Beyoncé is performing in London the same weekend as an FA Cup Final and, through a shared pricing tool, raises its room rates from £120 to £180 based on expected demand.

Hotel B, using the same system, can see that Hotel A has increased its rate and follows suit, not because its own bookings or internal costs justify it, but because the data suggests competitors are moving up. Hotel C then does the same, meaning there’s a blanket rise in prices across the city.

The CMA has also made clear under the Digital Markets, Competition and Consumers Act (DMCCA) that dynamic pricing must remain transparent. The total price shown to customers must include all unavoidable fees from the outset. “Drip pricing”, where fees appear later in the booking journey, is generally considered unlawful.

Why this also matters for small hospitality businesses

Most smaller hospitality businesses don’t share data at scale with competitors in the same way hotel giants do. But many do rely on third-party pricing software that benchmarks against the local market.

That introduces two practical risks relating to compliance and reputation.

First, if your system automatically adjusts prices purely in response to competitors’ movements, you may struggle to explain your price increases if you’re challenged by regulators.

Second, budget-conscious customers are sensitive to surge pricing and opaque charges. If room rates rise sharply without a clear reason, and mysterious extra fees appear late in the booking process, it will affect customer trust. They might even abandon the booking altogether and look elsewhere.

It’s not to say that you can’t alter prices at all. But dynamic pricing should reflect your own business realities, such as staffing costs, energy bills, food inflation, occupancy rates and seasonal demand, not just to compete with what the hotel down the road is charging.

What small hospitality businesses should do now

If you’re using pricing software, you should double-check exactly how it works. Does it rely heavily on competitor benchmarking? Do you have documented oversight?

In the case of price increases, be sure you can justify them in commercial terms, citing wages, energy costs, and peak demand, instead of just saying “the algorithm changed it”.

Lastly, check that your prices are adequately transparent. Making sure that your advertised prices include all the additional charges will keep you in the good books with both your future guests and the CMA.