UK Regulator Ready to Settle in Online Hotel Room Price Fixing Probe

by Reed Smith
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The UK Office of Fair Trading (OFT) has announced1 that it intends to accept commitments from Booking.com, Expedia, InterContinetal Hotels and others, and to close its investigation into online hotel room price fixing without a finding of infringement or imposition of any fine.

The OFT suspected that competition in the sale of hotel rooms by online travel agents (OTAs) was being restricted by the following aspects of agency agreements concluded between the hotels and the websites:

  • MFN or rate parity clauses by which the hotels agreed with the websites not to make rooms available more cheaply themselves or via other sellers
  • Preventing the websites from sacrificing commission to give discounts to customers

The decision bears striking similarities to the decisions of the European Commission in relation to the sale of ebooks,2 which was also resolved by commitments.

In the hotel rooms case, the parties have agreed that:

  • The OTAs will now be able to discount room rates supplied by the hotels by an amount not exceeding the OTA’s commission, either on a deal by deal basis, or alternatively up to an aggregate maximum equal to aggregate commission on all sales by the OTA of rooms in a particular hotel over a year (or such shorter period as the OTA may choose)
  • The hotels can make the OTAs restrict the availability and publication of discounts to “Closed Group Members” – that is, a group that consumers who have made at least one previous purchase have chosen to join by supplying their customer profile, and which operates through a password protected online or mobile interface
  • The commitments cover sales to UK residents of all EU hotel rooms for a period of three years
    Notably (and perhaps somewhat bizarrely), the OFT has not (unlike the European Commission in relation to ebooks) required the deletion of the MFN or rate parity clauses.

The investigated parties seem to have, in principle, persuaded the OFT that a totally free market with no restriction on discounting by OTAs would not be in consumers’ interests. The OFT recognises efficiency justifications advanced by the investigated parties to justify the (significant) restrictions which remain – a free for all would prejudice the hotels’ ability to alter rates in line with demand and room availability, would compromise the fact that room rates act as an indicator of quality to the consumer, and would “cannibalise” sales through the hotels’ own sites.

Subject to the OFT changing its mind following consultation on the proposed commitments (which ends on 13 September 2013), significant implications of the implementation of the commitments include the following:

  • All hotels will need to agree amended terms of business with the investigated OTAs, in line with the commitments. This is because the commitments given by the OTAs are not restricted to dealings with the investigated hotels.
  • The investigation relates to room-only sales. It therefore has no implications for package deals sold by tour operators. Tour operators tend to sell packages as a reseller rather than as an agent, as is normally the case for room-only sales, and therefore cannot in any event be lawfully restricted regarding any notional resale price of the room as part of the package.
  • OTAs may request providers of other services that they sell as an agent (for example, cruises) to agree to similar terms for the sale of those services. Although the investigation related only to hotel rooms, a request to apply the commitments to any structure where an OTA does not resell a service, but sells it on commission as an agent for the service provider, would seem very difficult to resist.

1 http://www.oft.gov.uk/news-and-updates/press/2013/59-13
2 See, for example, http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2013:073:0017:01:EN:HTML

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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