As the microscope focuses on supposed breaches of competition law around hotel bookings, a further illustration both the extent and confusion around the issue.
The UK’s Office of Fair Trading, a government regulatory body which examines business practice and its effect on consumers and industry, is currently investigating complaints triggered in part by hotel booking firm Skoosh in September 2010 over hotel room pricing on travel websites.
British newspaper The Daily Telegraph named three major hotel groups last weekend as being involved (though not confirmed) in the OFT’s investigation – a probe which is looking to establish whether a breach of both UK and European competition law has taken place when hoteliers have asked hotel distributors to charge the same price across websites.
“Rate parity” is frowned upon by many as it restricts the ability to differentiate a product based on price. Others simply call it “price fixing”.
A series of emails obtained by Tnooz have now shed further light on the issue, with some hoteliers confused about where they stand on the law and others seemingly just trying to protect their relationship large online travel agency partners.
Here, one Florida-based hotelier acknowledges that “rate parity” is far more prevalent in the US than in Europe, when asked to explain why the distributor is being told to set a room rate:
“…if we do not maintain parity with all, we are threatened with poor placement on sites and worst case removal of hotel from sales sites. That is the way the OTAs operate in [the] USA.
“[Company A] threatens [us] if [Company B] gets lower rates and vice-versa. It is a vicious cycle if we pull out of parity. I think the model in Europe is built to operate more competitively but that is not the model here (much as I wish it was the same in Europe!).”
Another exchange illustrates the issue further, this time between a Spanish hotel and fellow European distributor (starting with a message from the hotelier).
Hotelier:
“Dear partner, we would appreciate information on where to get the sales prices they [you] post as there were incorrect. As you can see, are selling cheaper than our own website for what they are in breach of obligation to price parity.”
Distributor:
“Just to understand, do you want everyone to fix the prices and sell your hotel at exactly the same rate?”
Hotelier:
“Yes I do. But in order to get it I would need to know from where are you taken prices in order to request them to fix their prices. Could you help me please?”
The pair then discuss the ongoing OFT investigation, with the distributor warning the hotelier that regulators are investigating such practices. The exchange continues:
Distributor:
“If you choose to break the law that’s of course entirely your decision. We will not assist in this matter.”
Hotelier:
“My apologize but i dont understand what do you mean by ‘breaking the law’. What it is suppose that I have done? It is not me who is breaking the rate parity.”
Distributor:
“Price fixing is illegal. ‘Rate parity’ may well be part of the hotel industry but that doesn’t make it legal and, as I have explained, it is now being investigated by the authorities. Many hotel chains have been approached already. I strongly suggest you seek legal advice before proceeding any further but, again, that’s entirely your decision.”
Hotelier:
“Thanks very much for your help but I am lost. Fix pricing is illegal? I mean, to have rate parity is illegal? It is the first time I listen that.”
The OFT says it is proceeding with the investigation as a matter of urgency, though it told the Telegraph that the probe is still at an early stage. It is still unclear as to the scope of the investigation given the international dimensions involved between consumers, distributors, agencies and hotels.
rate parity = Price fixing
?
Rate parity between hotels and OTAs is standard and transparent in the U.S., although you can always find discrepancies.
In fact, here’s TravelClick’s definition and defense of rate parity: “Rate Parity
The strategy that all distribution channels of a hotel should reflect the same rate for the same conditions for a particular room type. Rate parity strengthens customer loyalty and encourages guests to book directly with the hotel where terms/policies may be more flexible, given the same pricing as in other channels.”
In the U.S., hotels introduced rate parity requirements as a means of taking back control from online travel agencies, which were making headway by offering deep discounts.
Rate parity is also a normal process in France…
Wondering where we are going with this OFT investigation
Good discussion – and shows there is a lot for regulators to digest and evaluate.
Is so-called rate parity just an industry method as old as the hills that does not damage competition, or the complete opposite?
“In the U.S., hotels introduced rate parity requirements as a means of taking back control from online travel agencies, which were making headway by offering deep discounts.”
Taking back control is fine. If hotels want to sell above or below their distributors’ prices that should be entirely their decision. That’s not what this is about. Look at the email above from the U.S. hotelier:
‘“…if we do not maintain parity with all, we are threatened with poor placement on sites and worst case removal of hotel from sales sites. That is the way the OTAs operate in [the] USA.’”
This isn’t just about hotels enforcing rate parity. That’s daft enough in itself but currently in the hotel industry we have this perverse situation whereby the distributors – the online travel agents – are also enforcing rate parity.
All this stuff about hotels wanting to strengthen customer loyalty is academic. The question is why are all the major O.T.A.s insisting on rate parity?
Here’s what Expedia has to say about it:
http://www.eyefortravel.com/news/europe/expedia-stresses-rate-parity-and-inventory-parity-its-customers
According to Wikipedia, “price fixing is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price, or maintain the market conditions such that the price is maintained at a given level by controlling supply and demand. The group of market makers involved in price fixing is sometimes referred to as a cartel”.
Not at all, what rate-parity is.
There is no control of supply and demand with rate-parity. Rate-parity is an important revenue management tool for savvy hotel marketers, that guarantees the public market (read: does not include closed to public markets like negotiated agreements with large accounts) the same price for the same room at any given time.
That is important in a complex market like hotel distribution, where various players have volume pricing agreements (Hotel bed banks like GTA and Hotelbed, tour operators and others). And although they commit to using those rates only for clearly defined markets / product bundlings (like tour operator packages, OTA dynamic packages, etc.), hotel marketers routinely find those very same rates on public sites like Skoosh and the likes.
So rate-parity is not about fixing prices, and thereby controlling supply and demand of hotel offers – in contrary, there is propably no other online market so competitive than online hotel distribution, where prices for any given hotel room and date can change several times a day.
Rate-parity is simply a marketing tool to make sure, you as a hotel marketer still have control of your products pricing. And that is not unlawful at all, at least not yet.
On top of it, rate-parity gives the consumer piece of mind, because with rate-parity you know that the deal you get, is the best available at any given moment. No need to shop around, save to book.
“On top of it, rate-parity gives the consumer piece of mind, because with rate-parity you know that the deal you get, is the best available at any given moment. No need to shop around, save to book.”
So does communism…
“According to Wikipedia…”
No wonder this industry is in such a mess.
The O.F.T. only investigates a handful of complaints a year. When they do they have very clear evidence that competition law has been breached and they don’t rely on Wikipedia for information.
You only need to speak to one competition lawyer to realise what a serious issue this is. When you call, ask them if they think its a good idea to have standardised pricing so that the consumer doesn’t need to shop around. If you think I’m blunt, wait until you hear their reply.
The term online travel ‘agents’ masks an important distinction between distributors that contract at net rates and set the price (US model – usually ‘merchants’), and pure ‘agents’ where the price and other terms are set by the supplier (newer European model).
A difference of a few pence can play havoc with your ranking in a price comparison engine, so the latter group request a best-rate guarantee vis-a-vis the former, and vis-a-vis the hotel’s direct sales channel. In addition to that, some hotels have parity requirements of their own.
Compared to the US, there’s a much larger share of the market who *don’t* set the price because the pure agent model is more widespread here. And pure agents would tend to require rate parity for all of their hotels, meaning that far more properties would be affected.
What the OFT will say about this is unclear and probably depends on the other characteristics of the market – share distributed via agents of each type, level of price variation, supply fragmentation, etc. The net book agreement collapsed in 1997 but similar arrangements seem to exist legally in other markets.
The related issue of exclusive agency agreements doesn’t seem to be within the scope of the OFT investigation but is arguably more harmful than price restrictions in what is a very competitive, fragmented sector.
Interesting to read the link from Dorian’s post about the other ‘rate parity’ requirements from US OTAs. What’s the interplay between those agreements and the rates where they have pricing power?
Dan, interesting and valid point vis-a-vis agencies you make.
Don’t quote me but I think competition bureaus would be fine seeing hotels and agents agreeing to sell at the same price. Indeed, they may be said to be one and the same legal entity. However, that’s not the issue here. The O.T.A.s are not only insisting that their hotel partners sell at the same rates as them but also that everyone in the market sells at exactly the same rate. Rate parity applies across the board.
The net book agreement was indeed the last major case of resale price maintenance (RPM) in this country. You’re also correct that similar arrangements exist in other countries, notably the States since the ruling on Leegin vs PSKS in 2007 reversed the status quo on RPM held for the best part of a century. But there’s nothing anywhere happening on the scale we see in the hotel industry.
I can’t think of a single product or service that costs the same irrespective of where you buy it. If I started to see that, as a consumer I would be highly suspicious.
How about newspapers?
Apple and Nintendo have price parity.
Price parity is when one vendor’s price is the same everywhere. Price fixing is when multiple vendor’s prices are the same. These are VERY different concepts.
But the vendor is the OTA, right?
I think the issue is not that rate parity exists. The issue is that the practice is enforced in such a way that the intermediaries and the sellers are in effect colluding on pricing. The mechanisms that mechanisms that support this both commercial and technical have been in place for some time. For example rate integrity has been a formal business process for – well – ever.
The OFT is lifting the lid on the practice and we will see that it probably contravenes several UK and EU regulations
Dan, you’re right of course. I’m not sure why it’s allowed in newspapers.
Michael, Apple has price parity for short periods. Off the top of my head, it’s 18 months. This gives them time to assess the product in the market place. After that they have to allow discounting. Of course they can limit the level of discounting through setting their distributors’ buying prices close to their own selling price. NIntendo is most likely the same story.
Of course hotels and hotel management companies would prefer to show lower rates on their own website. The cost of distribution is much less, and there are no commissions to be paid, so they are able to offer significantly lower rates on their own website and still acheive the same profit.
Hoteliers are forced by the OLTAs to show identical rates, under the threat of removal or low ranking on the OLTA site.
Several hotels and hotel groups have tried to go against large OLTAs by trying to sell lower rates on their own website,and have all paid the price by losing all business and being removed or de-ranked on the OLTA site.
So at the end of the day, Hoteliers will always make the choice to offer OLTAs the same rate, in order not to lose out in markets where their own websites do not have anywhere near the same penetration as the large OLTAs.
Here is what Amazon.co.uk has to say about Price Parity.
http://www.amazon.co.uk/gp/help/customer/display.html?ie=UTF8&nodeId=200458310
Amazon’s argument is shamefully lame and transparent. Of course it wants to be able to guarantee its customers the best rates on its own site. Which major brand doesn’t want to? Expedia does for sure.
And that’s where this becomes very interesting. Expedia isn’t demanding the lowest buying rates. As the world’s largest travel company by far they’d be entitled to ask for that, but instead they’re asking for rate parity. Isn’t that a bit peculiar?
Great topic but I am afraid this won’t go anywhere. It would only help lawyers to get richer.
The truth the matter is Hoteliers should wake up (I don’t know how many times I said this now) and start selling on their own website the lowest rate possible on any room types at any given time.
Forget the rate parity.
Hoteliers, you need to fix the rules. It’s your product you’re selling. Stop being bullied by travel agencies. Don’t play the game of fear of being removed from the OTA website or “deranked”.
If your product is good, appreciated and relevant, you need to decide your rates policy (direct vs. indirect distribution) and where your product should be distributed.
Period.
All: As Guillaume has just mentioned on Twitter, it would be great to get some hoteliers chiming in with this discussion. Please feel free to forward the article to any contacts that you feel may be keen to add their input.
For once, we would be more than happy to accept anonymous comments, if it adds value to the conversation.
Guilliame, I certainly agree that hoteliers should reserve the right to sell at any rate they like, irrespective of their distributors. Giving up that control is insanity. However, I can’t see how selling at less than their distributors as a rule would work. No hotel has the marketing power to ditch distributors altogether.
Apart from anything else, it doesn’t work like that. Travellers want to compare hotels side by side – who is going to offer that service knowing that they’re ultimately going to be undercut?
I have more faith in the legal system than you. It may take a few hefty fines before the industry wakes up to the absurdity of rate parity but it will happen.
Hi Dorian,
Because the positioning of suppliers vs. retailers has changed with 21st century marketing.
You don’t need necessary the mid level shelves of a supermarket to feature your product as much as you needed to in the past.
It’s important that Hoteliers realize that their website is there to sell. And therefore if they want prospects to book on their website, they need to differentiate themselves with a different pricing vs. OTAs.
I don’t say it should be a rule for everyone but it’s worth to try.
Again, travellers have learned a lot in the last decade of travel research on the web. They are keen to book direct more and more. And guess what? Google and others help travellers to find the hotel website easier than before (Google Places is a good example).
When I talk to brand new hotel owners and General Managers, they tell me they spend more time creating the buzz around their hotel thanks to Facebook, Twitter, Blogs, clever PR and so on rather than worrying about the edistribution of the hotel. Another thing that comes to play now is the growth of Flash sales sites like VoyagePrive or Groupon which seems to attract hotel openings and get the words out for a limited time only.
Guillaume, I’m with you on all that. If I were a hotelier I would try every angle I could to get customers to book with my directly.
At the same time I would also recognise that however hard I try I’m still going to have to use O.T.A.s. I’m no great fan of some of them (you probably got that) but I do recognise that they serve a purpose in principle. They market hotels in 50+ different languages, provide call centres, ancillary products and, most of all, a comparison so the customer can see hotels side by side. No hotel is going to do all of that, particularly the last part which is essential.
I think a lot of hoteliers are misled by the number of direct bookings they appear to get to their site. What they don’t realise is that a significant number, if not the majority, come after customers visit an O.T.A. I’ve read a lot of articles talking about the high cost of marketing via O.T.A.s. but they never factor in referrals. It would take a brave hotelier to drop O.T.A.s altogether and my feeling is that, if they did, they’d notice a dramatic drop not only in O.T.A. bookings but also so-called ‘direct’ bookings.
For all that, hotels don’t need to accept every ridiculous contract condition that O.T.A.s demand. Some are even demanding last room availability. There’s no need for that. And some of the things they’re insisting on, like rate parity, are probably not even legal anyway.
As a hotelier who had fallen prey to the sudden distribution of my wholesaler rates I would hope that Tnooz would do an expose on this practice.
The “price fixing” facade and why Skoosh is so often called on it comes about as they are marking up and distributing rates that are not meant to be sold on any OTA website.
We have seen many of our wholesalers take the contracted rates that are meant for wholesale packages only and use them for public distribution attached to our hotel name. In addition to skoosh the sites lastminutetravel.com and easyclicktravel.com are also common in this same practice.
I know that for our chain I have been told it is against our contract for the wholesalers to distribute these rates and if it is not in the contract for all hotels – at least it is against the spirit of the agreement that these wholesale rates are not distributed to simply pump up their volume.
With the improving economy, our property will be making a hard look at the wholesale contracts we will choose to renew and try to strip out of consideration bookings that are likely from online distribution that we did not approve of explicitly. For wholesalers we are thinking that is probably what is coming inside a very small booking window.
@chainhotelier
I would have thought that someone debating with such confidence would be comfortable about not posting anonymously.
In any case, if you think the redistribution of wholesale rates is illegal why not refer the matter to the O.F.T. or a competition lawyer at least? Perhaps you could post their feedback here.