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When Is A Cheap Hotel Room, Not A Cheap Hotel Room?

John Cassels
07/02/2014

Locations

United Kingdom

When booking a hotel, most now look to the internet to find the cheapest room available.

When booking a hotel, most now look to the internet to find the cheapest room available. Consumers would hope that online travel agents (OTAs) would be competing with each other to offer the lowest price and, if necessary, reduce the commission they earn in order to receive the business.

However, for a number of years in the UK, hotels and OTAs agreed to adhere to a set of "best online rate guarantee" provisions. The effect of these 'price parity' clauses was to prevent OTAs ‘undercutting’ the hotel or other OTAs by offering a cheaper rate.

The OFT believed that such price parity clauses limited competition between OTAs and increased barriers to entry for new OTAs wishing to enter the market by offering better discounts to consumers. Interestingly, the investigation was instigated by a complaint (Skoosh) in 2010 from a small OTA who became frustrated at not being able to offer deeper discounts on hotel rooms. It argued choice was good but not very useful if it meant many OTAs were selling rooms at the same minimum price.

Such price parity practices (try saying that five times) have been investigated by the OFT in the last few years and at the end of January, the OFT announced that it had entered into commitment decisions to address the OFT's competition concerns with Booking.com, Expedia and International Hotels Group. The commitments effectively ensure that such pricing behaviour is modified though no fines will be imposed on the named companies.

Many will see this commitment decision as a ‘win’ for the little guy. It establishes a basis for OTAs to undercut their established and larger competitors thus reducing the level of commission and passing on savings to the consumer. Although the relevance of the OFT decision only applies to closed group members who have made a prior full-price booking with an OTA, this paves the way for other hotel operators (if they haven’t already done so) to change their pricing agreement strategies to give consumers a more competitive pricing choice.

If you would like to discuss any of these issues please do not hesitate to contact us.

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