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After six months of investigating, including 60 interviews, the U.S. Justice Department’s Antitrust Division concluded that Expedia Inc.’s $1.3 billion acquisition of Orbitz Worldwide will not harm competition because Orbitz’s market impact is marginal.
The Justice Department announced September 16 that it would not challenge the marriage.
A key issue was whether the acquisition would empower Expedia to hike hotel industry commissions like it did in Australia after acquiring online travel agency Wotif in 2014. In North America, major hotel chains generally pay commissions of 14-16 percent while independents generally shell over around 18-22 percent.
As we reported, Expedia did not raise commissions after acquiring Travelocity earlier this year.
In deciding that the Orbitz acquisition won’t harm competition, the Antitrust Division said it found no evidence that Expedia or Orbitz would level new fees on consumers using their sites, and when considering the commissions they charge airlines, hotels, and car rental companies, the division “found that Orbitz is only a small source of bookings for most of these companies and thus has had no impact in recent years on the commissions Expedia charges. Many independent hotel operators, for example, do not contract with Orbitz, and those hotels that do often obtain very few bookings from its site.”
In other words, Orbitz Worldwide’s market impact in the U.S. isn’t really a game-changer and in fact the Chicago-based online travel agency has been limping toward the finish line anyway.
The antitrust probers also found that Priceline, including Booking.com, provides an alternative distribution option for travel providers as will new booking entrants, including TripAdvisor and Google.
“… the evidence suggests that the online travel business is rapidly evolving,” the Antitrust Division stated. “In the past 18 months, for example, the industry has seen the introduction of TripAdvisor’s Instant Booking service and Google’s Hotel and Flight Finder with related booking functionality.”
The Antitrust Division’s decision not to stand in the way of the merger was a bitter disappointment for the American Hotel & Lodging Association, which came out publicly against the deal at a very late stage just a few weeks ago.
Following today’s decision, the AH&LA issued a statement expressing its displeasure.
“Simply put, this decision will hurt consumers and small business owners, and remove choice from the marketplace,” the hotel association stated.
“By approving this deal, only two players control the online marketplace: Priceline and the behemoth Expedia, now owning Orbitz, Travelocity, Hotels.com, Hotwire, Cheap Tickets, and Trivago. Together, these two players control over 95 percent of the online travel agency (OTA) bookings in the United States. We continue to believe that increased consolidation is bad for consumers and bad for business.
“As we’ve said all along, this transaction will result in significant negative consequences for consumers and also the large number of our members who are small businesses and independent hotels. It could lead to increased distribution costs for independent hotel owners who risk seeing booking commissions rise by double digits.”
The Antitrust Division thought otherwise and will undoubtedly be watching Expedia’s future moves to ensure it doesn’t use its new market power to thwart competition.
The Washington-based AH&LA was heavily involved in getting the chair and ranking member of the Senate antitrust committee, as well as a few members of the House of Representatives to issue statements of concern about the then-proposed acquisition.
One individual close to the deal argued that the AH&LA effort was counterproductive.
“The AH&LA effort totally backfired,” this insider said today after the Antitrust Division announcement. “They politicized the process, which is never a good thing when it comes to DOJ antitrust reviews. And they had competing, confusing messages. First they say this deal would impact commissions, and then they launch a campaign to encourage consumers to book direct on hotel brand sites because those are the only bookings you can trust, clearly suggesting that hotels don’t care about online travel sites. It was really amateurish.”
It is interesting to note that the Antitrust Division probers apparently took the route that the acquisition’s backers feared the most: Viewing the potential harm to competition in the relatively narrow U.S. online booking context and not necessarily weighing the deal’s impact on the broader U.S. travel market, including online and offline.
Even while examining the acquisition from the narrower online perspective, where Expedia’s U.S. market share is much greater than it is in the larger U.S. travel market as a whole, the Justice Department concluded the deal would not harm consumers.
“Looking at the facts and applying our Horizontal Merger Guidelines, we concluded that Expedia’s acquisition of Orbitz is not likely to substantially lessen competition or harm U.S. consumers,” the Antitrust Division stated.
Expedia’s stock price rose 4.92 percent to $124.68 at the market close.
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