Rate Parity, Price Fixing and the New Cold War

Capitalism seems to strangely merge with communism towards the extreme end. Unimpeded, Big Corp will try and attain a monopoly status just like an old-fashioned state run enterprise. Sorry if that’s obvious to you – it’s only just occurred to me. Just as it occurred to me that I might be squeezed out of the cut-and-thrust of the free market into a sedentary life of potato farming.

In the last five years I have received an endless stream of angry calls and emails from hotels. With real desperation in their tone at times, they demand that Skoosh removes their properties from its site or increase its prices so that they match the prices on the hotels’ own websites and all of their online partners. It’s never sounded right to me. What are they scared of?

It’s all founded on a term which has seeped into industry parlance unchecked – ‘rate parity’. What it means is that all online retailers of hotel accommodation are ‘encouraged’ to sell individual hotels at the same rate as each other. So if Expedia is selling the Boston Hilton at $200 per night so should Booking.com, Ebookers, and every other company.

If you’re living in the real world you might notice more than a passing similarity between rate parity and price fixing. Switch the words around a little and you can quickly see the connection. So, why is it acceptable to manage distribution like this in the hotel industry when we’d jump up and down if we saw similar in telecoms, or cars or just about anything else?

The spoken argument for the practise in travel is ‘rate integrity’. Just as rate parity holds some sort of illusion of fairness, rate integrity – well, you can’t argue with integrity can you? Not if you have any yourself.

But what does it actually mean? Put simply, as so often is, it means that the consumer understands the value of any particular hotel because the pricing associated with it is consistent. No longer do you have to shop around for a better rate because you can be sure (small print aside) that the price will be the same wherever you look. I’m told by the industry that this makes things much less confusing to the online shopper.

The thing is, I’m not that confused. If I buy a coke in a pub for £1.50 and then see exactly the same product in the shop down the road for 99p I’m not confused. Never. What might be confusing to Jo Public are the endless swings in prices on hotel sites. How is the same room $80 one night and $220 on another? Demand and supply you have to suppose. But should you book now or wait for the prices to go down? It feels a bit like a stock market.

I don’t really buy rate integrity. It’s certainly not consistent with other distribution strategies. Indeed, in the past few years the industry has rolled out a concept far more complex than anything we’ve seen before. If you ever wondered whether there was any real attempt at transparency in hotels business you need look no further than the ‘opaque’ hotels.

Many of the larger hotel chains will allow us to keep their properties on Skoosh as long as we don’t disclose that they’re on there. We must keep them ‘opaque’. You, lucky consumer, can book excellent hotels at massively discounted prices. And there’s only one catch – you won’t know which hotel you’ve booked until you’ve paid. Oh, and one more catch, you can’t cancel. Or, you can, but you won’t get a refund.

So, who is behind all this rate parity nonsense? Having been bombarded by the hotel chains directly, threatening to cut of our supply, I’ve always assumed it was them. But now I’m wondering if it is. If the enforcement of rate parity is anything to go by it’s not the chains. When I challenge their ‘philosophy’ they tell me they have to do it or the big online travel agents tell them they’ll cut their marketing or entirely delist hotels which don’t comply.

Now it’s getting really murky. Has it got to the stage when a few big players enforce distribution strategies on their hotel partners? Are they that powerful? It seems so. Last year Expedia and Choice had a spat over exactly this issue and Choice appeared to capitulate. Here’s how Expedia, Inc.’s CEO and president Dara Khosrowshahi, explained his request for rate parity:

“…As far as the discussions that we’ve had with Choice, we are not doing business with Choice right now on a chain basis. We don’t have a vast majority of Choice hotels on our side.” said Khosrowshahi.

He added, “First of all, our primary goal is to have the broadest, deepest set and highest quality set of inventory for the benefit of our customers…it’s not really an issue of economics; it’s more an issue of our wanting rate parity and inventory parity for our customers.”

Well, if you were Expedia you would want to be able to tell your customers that they have the best rates. We all do. But is it good for the industry?

What happens when there is no price competition on hotels? It’s a bit difficult to say because we haven’t had a precedent for many decades outside of Soviet Russia. Meanwhile, unless there’s some serious intervention at government level we’ll soon find out. My guess is that the wholesale market will drop out of the equation, the retailers will be cut off from their supply, the Cold War will resume and I’ll get into growing potatoes.

You can leave a response, or trackback from your own site.

12 Responses to “Rate Parity, Price Fixing and the New Cold War”

  1. hotel says:

    Hi Dorian,

    but don’t you think hotels should create their own price competition ?!? After my point of view it is more than unfair to sell wholesaler rates to the final client !! Don’t you see it like this ?!? When you sell those wholesaler rates to the final client, how can a tour operator or incoming agency survive ?!?

  2. Dorian says:

    Hi,

    Thank you for taking the time to write.

    don’t you think hotels should create their own price competition ?!?

    What would this look like? How does an independent hotel in London or Paris or wherever know what price to sell at in Sweden or Singapore?

    I understand that it must feel frustrating for the hotelier to lose control to the wholesaler but they might feel better if they understood what the wholesaler actually does for them.

    When you sell those wholesaler rates to the final client, how can a tour operator or incoming agency survive ?!?

    Tour operators and incoming agencies provide different services to customers than wholesalers. I don’t think wholesalers selling to the consumer will change that.

  3. Dorian,

    I am not so sure that the Expedia vs. Choice issue was strictly a parity thing. The way I understand it, from reading forums on Linkedin.com and several industry magazines is that Expedia demanded so-called “last room availability”. In other words, a property has one room left and Expedia doesn’t allow the property to block that room. In the minds of many hoteliers this throws any kind of revenue management strategy out the window. Supply and demand rules dictate that if supply becomes limited, prices go up. But Expedia disallowing the room to be pulled from their site plus them insisting that there never will be a rate published lower than Expedia’s makes for the hotel having to eat the commission Expedia charges while the hotel could have easily sold the room on their own channel were it not for Expedia’s visibility. The argument there is that the hotelier is no longer in control of her own inventory.

    I do agree that a hotel room costing 80$ one day and 220$ the next is a hard pill to swallow for the buying public. I recently had to explain this to a friend who doesn’t work in the hotel industry and it took me damn near an hour.

  4. Dorian says:

    Jeroen,

    Last room availability was certainly a key issue here and, I agree, it’s a tough condition to place on a hotel.

    With regards the rate parity aspect, you seem to be suggesting that the hotelier’s own rate has to go up and down with the Expedia’s. That would be shocking but I don’t think it’s the case. I imagine the reverse is true – the hotelier controls the selling price to the consumer and Expedia’s buying and selling rate is somehow directly linked to that.

  5. Hi Dorian,

    Very well said. I think there are actually more of us out there who feel this way about rate parity. Great article.

    Ashwin

  6. Shamus says:

    The OTA’s are getting a bit much now I think.

    We set our policies and selling prices (sure parity is ok there)but we list on their engines not just for our benefit and they must realize this!

    They cannot continue to hold us ransom to their demands, if i want to have a 5% discount I should be able to without any objections if all my online channels are inline.

    If my direct booking engine is cheaper than all my channels that should be up to me because at the end of the day I want traffic to my site rather than others.

    The term price fixing makes alot of sense right now and yes I do think it will become a major issue at government level very soon if not further looked into.

  7. […] where Expedia ‘agrees’ rate parity with a hotel the effects (and benefits) are passed throughout its branded sites, its affiliate […]

  8. […] sure you’ve read all the same legislation that I have in coming to your conclusion that enforcing rate parity is not […]

  9. […] Sabre and others) contractually oblige their distributors and suppliers respectively to observe rate parity. In other words all distributors of hotel accommodation must now sell rooms at exactly the same […]

  10. […] And guess what, twenty years on I’m at the centre of what’s likely to be the biggest legal case the travel industry has ever seen. I’ve reported more or less the entire hotel industry to the O.F.T. for price-fixing. […]

  11. […] which was fun if a bit gratuitous (not you Olga, you’re special!). And then we implemented rate parity to completely pervert the market and take away pricing and distribution potential from the hotels. […]

Leave a Reply

*