I’ve told the press that I think the days of rate parity are coming to an end but, with one exception, they’ve yet to quote me so it looks like I’m going to have to say it myself.
As you may imagine I’ve been following the recent developments in the world of hotel price fixing with fascination. In less than a month the Office of Fair Trading made formal allegations against three of the biggest players in the industry (Expedia, Booking.com and Intercontinental Hotels) and then a law firm in the States started a class action against a whole lot more industry giants. And, yesterday, another.
The press have followed the case closely and there has been a modicum of detail added by journalists. Some have recognised the case has wide implications for an industry which, it transpires, is largely based on a price fixing model. There’s talk of a possible need to shift the purchasing and sales models worldwide.
What I haven’t read yet but which occurred to me is that we’re closer to that point than many realise. Are you ready for a crash course on the hotel industry and competition law?
The two biggest players in the O.F.T.’s case are Expedia and Booking.com. They’re direct competitors but have somewhat different models. Their selling prices are both directly connected to the hotels’ own rates (and, as such, to each others) but Expedia contracts a net rate (or ‘merchant’ rate as they call it) and Booking.com a commissionable rate.
As a consumer this is partly academic. It doesn’t matter whether you book your hotel through Expedia, Booking.com or with the hotel directly, you’re going to get the same price.
It was all level pegging then, crucially, it was revealed that Expedia applied for Type B immunity at the point that the investigation started with the O.F.T. Furthermore, it is only being investigated for the period up to Sep 2010 which suggests to me that they’ve already stopped doing whatever they were told they shouldn’t be doing – i.e. forcing hotels to sell at the same price as them.
So, short of the O.F.T. dropping charges against Expedia, they’ll continue to cease price fixing in the U.K. and, we may assume, in Europe also because the law is the similar there. Meanwhile, Booking.com is continuing to enforce price parity and is publicly stating that it will vigorously defend its right to do so. As it has a somewhat different model to Expedia, it may put forward an argument to say that it is entitled to maintain rate parity even if Expedia isn’t, but to what end?
The thing about rate parity is you can’t have some companies working with it and others not. Booking.com could, if it chose, take this case to two further rounds of appeal but all the while it’s defending its right to charge the same price as the hotel, its biggest competitor, Expedia, released from the shackles of rate parity by its own doing, will be able to undercut them. And, because both company’s contracting models are related directly to the hotel’s own price, Expedia would know exactly what Booking.com and the hotel are charging themselves.
You might think Expedia’s application for immunity on that basis was a very smart move. It doesn’t quite get them out of any possible fines as incorrectly reported in the press. However, if they suspect that there are no good reasons why they should be involved in vertical price fixing then perhaps this was their best shot. They get to dob in their biggest rival and undercut its prices.
There have been some vigorous denials, both here and in the States, that rate parity is illegal, and it may take a while for the authorities to judge that one way or another. But, already, all the thousands of hotels which complied with the practice under duress, are learning that this clause in their contracts, and the associated badgering to comply with it, is at best suspect and they may not be quite so quick to comply.
From where I stand it looks like the rate parity game is nearly over. And you can quote me.