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A new study released by European Union (EU) competition authorities shows that their well-intentioned moves have had a limited impact in the world of online travel agencies and hotels.
Several European countries have attempted to deal with alleged anti-competitive practices employed by the two biggest online travel agencies — Expedia and Booking.com — through various pieces of legislation.
The changes were enacted to try and improve competition by outlawing or restricting parity clauses in contracts between hotels and third parties.
Although individual countries brought the action, both Expedia and Booking.com decided to amend their policies for the whole EU.
In essence this meant that hotels would no longer be forced to give the online travel agency the lowest prices and best availability and would be free to cut better deals elsewhere – apart from on their own websites.
Germany went further still by outlawing Booking.com’s tweak (it is still investigating Expedia), meaning that hotels are actually free to offer the cheapest price direct online.
All this was supposed to invigorate the market by allowing competition to flourish but so far it looks to have had very limited success judging by the study of 16,000 hotels in the 10 Member States, 20 online travel agents, 11 metasearch websites and 19 large hotel chains.
Of those hotels that replied, 47 percent said that they were not aware of the changes brought in by the “big two.” Worse still, of those hotels that were aware, the majority said they had not done anything about it, and only a quarter decided to change their pricing.
Competition authorities just don’t seem to have made as much of an impact as they might have expected and even those hotels that are aware of the loosened pricing rules didn’t seem to have been too bothered.
Some 79 percent of respondents said they had not offered differentiated rates among online travel agents since the changes made by Expedia and Booking.com came into place. The reasons for this are revealing. Just more than half (53 percent) said there was no reason to treat online travel agents differently but 33 percent said their contract did not allow it and the same amount said they were scared of being penalized.
For the 21 percent of hotels that did price-differentiate, the most common reason (54 percent) was to increase visibility.
As well as collecting replies from hotels, the EU also analyzed data from metasearch sites. The findings suggested that the changes led to an increase in price differentiation across all markets. However, the results should be taken with a pinch of salt as the “data does not distinguish between ‘true’ price differentiation and differentiation resulting from differences between the products offered by the OTAs on the metasearch website (for example, different categories of room, inclusion of breakfast, differing cancellation rights).”
The changes have also barely made an impact on the different channels used by hotels. In 2014, offline made up half of all sales but had fallen to 45 percent in the first half of 2016; online travel agents had moved from 36 percent to 41 percent, while direct online rose from 13 percent to 14 percent: not much of a change.
The issue of rate parity has been bubbling away for years but it was first brought to the attention of authorities in 2010 by Dorian Harris, the founder of UK-based hotel booking website Skoosh.
“From the perspective of a small online travel agent, I am now in the position to go to a hotel and negotiate rates that are not Booking.com’s rates but the hotel’s just not going to do it because they’re not going to risk being seen to have opened a new partnership at lower prices and being demoted on Booking.com,” Harris said.
Harris believes that Booking.com and Expedia have built up their position in such a way that they now have “an unassailable lead.”
While the results seem inconclusive at best, the EU appears happy with its work.
“The results of the exercise suggest that measures applied to the parity clauses, namely (a) allowing large online travel agents to use narrow parity clauses, and (b) prohibiting online travel agents from using them altogether, have generally improved conditions for competition and led to more choice for consumers,” it said.
The European Competition Network (comprising the national competition authorities of all EU member states and the European Commission) will continue to keep the hotel booking sector under review.
Booking.com said: “We are pleased by the positive findings in the ECN Working Group’s report that continue to endorse our narrow MFN commitments which we believe support healthy competition in the marketplace, as well as greater transparency for consumers. The findings reaffirm the views of 25+ national competition authorities across Europe who accepted the modified parity agreements put forth by Booking.com in 2015. These modified agreements ensure accommodation providers don’t free-ride on the Booking.com platform, and that consumers can compare prices for different accommodations quickly and accurately.”
Expedia said: “Expedia notes the publication by the ECN of the results of its recent monitoring exercise in the online hotel booking sector and will study the report with interest. Expedia remains confident that its agreements with hotels comply with all applicable laws and strike a fair commercial balance, allowing Expedia to offer consumers the widest possible range of competitive accommodation offers on its sites.”