Opinion: Legal questions remain after OFT probe into web hotel discounting

Opinion: Legal questions remain after OFT probe into web hotel discounting

By Jeremy Robinson, partner at Kennedys Aviation

The OFT is consulting on whether to accept binding commitments to remove restrictions on some discounting practices by online travel agents.

The regulatory body has been investigating this question for three years, and last year, it issued a “Statement of Objections” in which it alleged that Booking.com, its ultimate parent company Priceline.com, Expedia, InterContinental Hotels Group plc (IHG) and Hotel Inter-Continental London Limited (ILPL) infringed competition law in relation to the online offering of “room-only” hotel accommodation bookings by online travel agents.

The legal question was whether the separate agreements which Booking.com and Expedia entered into with IHG and ILPL broke competition law by restricting each OTA’s ability to discount the rate at which room-only hotel accommodation bookings are offered to customers. Specifically, the OFT had three concerns:

  • Firstly, that the restrictions on OTA discounting a hotel’s room-only accommodation limited competition on room rates (as between rival OTAs, and between OTAs and the hotel’s direct online sales);
  • Secondly, that these restrictions may prevent new OTAs entering the market and/or achieving sufficient scale to compete;
  • Thirdly, that if similar discounting restrictions are to be found elsewhere in the market, the distortion of competition is exacerbated.

The parties have offered commitments to the OFT to seek to address these concerns and to allow the OFT to bring the investigation to a close.

The commitments are to last for three years and apply to bookings made by UK residents for rooms in IHG hotels located in the EU. The commitments work by requiring the parties to modify their behaviour so that it accords with certain “Principles”:

  • OTAs would be free to offer reductions on headline room rates, funded by their commission revenue or margin, to “closed groups” – ie a group where membership is not automatic and where consumers must actively opt-in to become a member, where any online or mobile interface is password-protected and where the members have completed a customer profile (containing prescribed information).

    To be eligible for discounts, the end-user must have joined the closed group and have made a single previous booking which is or has become non-refundable after the effective date of the commitments.
  • OTAs would be free to publicise information regarding the availability of discounts in a clear and transparent manner, including to price comparison websites and meta-search sites.

    OTAs would not be able to publicise information regarding the specific level of discounts for any IHG hotel room to non-members (for example, the amount or percentage discount offered which would allow a discounted rate to be calculated). Other non-IGH hotels may prevent OTAs from publicising information regarding the specific level of discounts for a particular hotel room to non-members.

If the OFT should formally accept these commitments, it will close its investigation without deciding whether the practices under suspicion were, or were not, unlawful. There will be no appeal by the parties over whether the OFT’s decision was correct.

The industry will have a better idea why the OFT was concerned, and what the parties needed to do to address those concerns adequately, but without knowing whether the practices investigated were actually unlawful.

This sounds like a small point, but many hotel or other businesses operating discounting restrictions will seek advice on whether their own arrangements comply with competition law and this lack of legal certainty will not help.

A point of particular interest in this case was that the OFT decided that it could accept commitments from the parties even though it found that these commitments did not fully address the restrictions on competition.

The OFT recognised the possibility that these restrictions on discounting could be justifiable by the efficiencies they bring.

The OFT admitted that it did not fully test these efficiency arguments but noted that there may be certain benefits for consumers from hotels having the ability to set and control the headline rate for their hotel rooms independently, and so restrict OTAs’ complete freedom to discount.

The OFT appeared concerned to ensure that the use of yield-management systems to maximise efficient pricing was not undermined. It is welcome that the OFT has considered these arguments and recognised that they may have weight, but perhaps frustrating for future cases that it has reached no conclusions on them.

For the parties, if the OFT accepts the commitments it will bring a welcome end to the legal and business uncertainty that arises when a business is subject to a long and resource-intensive competition investigation.

The consultation is open until 13 September 2013.

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