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Is rate parity the same as price fixing?
April 28 2011

The U.K.’s competition watchdog aims to answer that question in its investigation of hotel online booking practices.

Highlights
  • The Office of Fair Trading is looking into suspected breaches of competition law.
  • No hotel companies have been named in the dispute.
  • Will low-price guarantees become illegal?
By Stacey Mieyal Higgins
News Editor-International
stacey@hotelnewsnow.com

In England there is a debate percolating over something that is standard practice in American hotel revenue management—rate parity.

The issue grabbed consumer attention last week when The Daily Telegraph published a story about an investigation by the Office of Fair Trading into “suspected breaches of competition law in the hotel online booking sector,” according to a statement by the OFT, the United Kingdom’s consumer and competition authority.

The Telegraph story takes a giant leap based on what the OFT has said publicly. It sources emails from hotel employees about pricing, but they only prove that individual hotel properties are managing all distribution channels consistently, not collusion among competitors.

The allegations are rooted in a campaign started last September by the owner of online travel agency Skoosh, Dorian Harris. Harris has been vocal about his position on rate parity: “I’ve reported more or less the entire hotel industry to the OFT for price-fixing,” he said in his 29 October 2010 corporate blog.

Harris believes “rate parity is tantamount to price fixing” and said as much on stage at the EyeForTravel conference in November in Amsterdam. He also realized at this conference that revenue management is like, “a science.”

In his blog, he discloses he has lost several hotel clients at Skoosh because he refused to honor their pricing strategies.

What is unclear is whether Harris hopes to take away power from his competition, the bigger online travel agencies such as Expedia and Booking.com, or if he truly believes hotel revenue managers sit around a table and collectively agree to screw the consumer through collusion. He did, however, say in his blog: “If the going remains good we might just have enough hotels in each city to enable us to set the prices ourselves. The Holy Grail is coming our way.”

In the end, these are serious allegations that could have dramatic impact on the worldwide hotel industry if the OFT decides rate parity is price fixing. 

The OFT won’t confirm or deny the involvement of any hotel companies at this point (I asked), but that didn’t stop the Telegraph or Tnooz
from producing emails that contain discussions of price parity and the Telegraph names specific properties in the U.K. I imagine it was easy to find this evidence because it’s not some closely guarded industry secret as the Telegraph claims. During the early days of OTAs, many, if not all, major hotel companies established low-price guarantees for Brand.com. This gave hotels the upper hand for their own pricing integrity, although it didn’t protect their profits from the OTAs.

So, here’s my question for the OFT and our readers: There are many products and brands that avoid deep discounts and shun an outlet-mall mentality, why should hotel room inventory be considered different?

Feel free to share your opinions below.

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