This site uses cookies. By continuing to browse the site you are agreeing to our use of cookies.  Find out more here  Close
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?

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.

COMMENTS   Show All
skooshhotels
10/25/2011 5:32:00 AM
CE, if rate parity is there to protect hotels why do you suppose that Expedia and Booking.com insist upon it? For the record, Apple don't set the price across the market for their products. That would be illegal. Just do a search for iPads and see how many different prices there are.
CE
10/22/2011 4:12:00 AM
Agree fully with OB. Why should the likes of Skoosh, otels.com etc undercut the hotel's asking price for a room? The hotel needs to controls the rate it sells at. Rate parity is there to protect the hotel and not the likes of Expedia and Bookings.com. Price fixing does not even come into the equation. Of course, if you guys marked up the rates the wholesalers give you in a decent way, not to undercut the BAR (Set by the hotel, like the asking price for an IPhone, set by Apple), then you could compete on a level playing field with the larger players. Offer something unique. Something different. Good terms and conditions. Not surprised the OFT is looking into this - apparently there is not enough work to go around an over-inflated civil service!
skooshhotels
6/30/2011 3:08:00 AM
@ fredbean Were this just about protecting Skoosh I would never have gone to these lengths and nor would the O.F.T. have stepped in. The work of competition bureaus is to protect consumers, not businesses. Businesses can fight their own battles. This is of far more fundamental significance. Big companies will always want rate parity and there's good reason why OTAs are so insistent on it. An even playing field favours big companies. The economics is subtle but not esoteric. If you have the biggest brand and you can guarantee the best prices you're in a very strong position. It's not unassailable, no. But the independents ability to undercut the big players through lower operating costs - not feeding advertising companies and shareholders - is a major weapon in their arsenal. Take that away and you seriously hamper them. The reason why I've been so passionate about all this is because if I lose we all lose. If rate parity becomes legal in our industry it will become so everywhere. All big companies will adopt it. Since the Leegin case was overturned in 2007 it started happening very quickly.Thousands of clothing manufactures now practise minimum resale pricing. Amazon also now insists on rate parity - the suppliers on its market place are no longer allowed to sell at lower prices outside of Amazon. This case isn't about Skoosh and it isn't even about the hotel industry per se. It's about the negative affects of allowing big companies to effect artificial barriers to competition. I was much more comfortable in the old set up watching the big OTAs burning money - hoteliers money and consumers money - on advertising to shore up their brands, allowing Skoosh and others to undercut them.
fredbean
6/28/2011 8:33:00 AM
This entire process was brought about by the MFNs in the OTA agreements. Let's say that is it found to be price fixing and we go back to the old wholesale way of contracting based on volume provided. Aren't small OTAs going to be in a perpetual state of crisis because their rates won't be competitive to the larger groups? One way to look at it is that Rate Parity levels the playing field by taking price out of the equation and forces OTAs and agencies to focus on providing value, creating customer loyalty, and creative marketing. I'm not sure you want what you're asking for here but the blame is definitely not on the hotelier, in my opinion.
Login or enter a name   Post Your Comment  Check to follow this thread via email alerts (must be logged in)
(4000 characters max)

Comments that include links or URLs will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff

TRENDING
AC brand enters US, 50 more on tap
Freitag’s forecast: 10 predictions for 2015
IHG’s Kimpton buy a ‘perfect fit,’ CEO says
6 hotel trends to keep an eye on
NYC Plaza saga continues to unwind
6 things about Expedia you didn’t know
VIDEO
Wyndham focused on management
Greg Mount talks RLHC's turnaround
The Lodging Conference in review: Day Two
The Lodging Conference in review: Day One
US supply growth not a problem
LATEST NEWS
Sources: Terrorism insurance renewal not dead
What could be in store for US guests in Cuba
5 hotel marketing trends for 2015
US hoteliers eager to unlock Cuba’s potential
Cyprus tourism shows positive signs for growth
STR: US hotel performance for November 2014
Contact Us
Hotel News Now
18500 Lake Rd.
Suite 310
Rocky River, Ohio 44116
        
Copyright © 2004 - 2014 Hotel News Now, a division of STR, Inc. All Rights Reserved.   Privacy