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IHG, OTAs face charges of unfair competition

- Judy Maxwell (Assistant Editor)
OFT investigation looking at online booking rate practices.

 

From Financial Times

The accusation of anti-competitive behavior that the Office of Fair Trading leveled Tuesday at InterContinental Hotels Group and two of the UK’s biggest online travel agents strikes at the heart of the relationship between hotel companies, agents and consumers.

At its center is trust. The guarantee given by travel companies such as Expedia and Booking.com is simple – if you book your room with us, you will not find it cheaper elsewhere.

But, says Dorian Harris, founder of Skoosh.com who helped start the OFT investigation, that is because companies that try to price rooms cheaper are forced out of the market.

‘What you’re seeing is every major online travel company and hotel chain saying they’ve got the best rates,’ he said. ‘What they’re not saying is that anyone who tries to undercut them will be intimidated out of the market.’

The OFT alleges in a provisional finding – issued to the companies in the form of a statement of objections (SO) – that IHG, Expedia and Booking.com were engaged in vertical price fixing, whereby a price is fixed by a supplier and the retailer cannot go below it.

This was allegedly done through contractual restrictions known as price parity agreements, as well as a more general understanding that agents would not undercut the price set by IHG, according to the OFT.

In Expedia’s case the practice occurred between the beginning of 2007 and late 2010 when, says a person familiar with the probe, the company made certain admissions and sought leniency in exchange for co-operation. With Booking.com, the OFT alleges the practice has been going on since 2007. The rest of the travel industry will be watching the case closely. One senior hotel industry worker said pricing parity agreements were ‘standard practice.’

Mark Datta, managing director of mobile-only service Blink Booking, said the status quo offers the illusion of customer choice. ‘The online travel market may appear to offer plenty of choice and competition, but the reality is that there are lots of different shop windows selling the same rooms at the same prices.’

The person familiar with the probe said: ‘They limit retail price competition and make it difficult for smaller entrants to enter the travel agent market when those entrants would be prepared to discount to build a brand ... so the [big] travel agents offer best price guarantees, but it’s the same price for the same room.’

Harris established Skoosh in 2001. An Internet start-up with lower running costs than many of its bigger competitors, the company could afford smaller mark-ups on the hotel rooms it had to offer. By offering cheaper rooms than competitors it hoped to make up the difference in volumes. ‘It was in a bid to get our foot on the rung ... it’s a standard route to market,’ he said.

Harris said in 2007 that he began receiving letters from hotel chains in the US and Europe warning him of possible legal action and banning his company from offering their rooms.

It culminated in a threat of physical violence from a hotelier in Prague if he did not stop undercutting.

‘Our back was against the wall at that point ... we were considering giving up,’ he said, adding that he then went to the OFT.

No wrongdoing has been proved. IHG said its arrangements with online booking agents were compliant with competition laws and consistent with industry practice.

Expedia said: ‘Expedia will now review the SO and provide its response to the OFT in due course.’ Booking.com said: ‘We disagree with the allegations contained in the OFT’s statement of objections and intend to contest them vigorously.’

The companies have the opportunity to respond to allegations before the OFT decides if the 1998 Competition Act has been infringed. If they are found guilty, the OFT can levy fines of up to 10 per cent of a company’s annual revenues.

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