Price fixing via rate parity

The Times of London reports that the UK's Office of Fair Trading is investigating allegations that hotel chains are
colluding with one of the world’s biggest booking websites to keep room
rates at an artificially high level. The allegation by discount travel website,Skoosh.com states that Booking.com, a subsidiary of  Priceline.com, is involved in price fixing known as “resale
price maintenance”, which, in this case, involves hotels agreeing not to
sell their rooms at a lower price than that advertised on the Booking.com
website. The alleged consequence for travelers is inflated room rates in a market
controlled by the mega travel website giants.

Skoosh claimed it was being put under pressure to offer rooms at a standard price and its founder, Dorian Harris asserted that rate parity does not really benefit hotels; an arguably correct viewpoint that many hotel biggies do not go along with perhaps out of fear of alienating the large OTAs.   EU and UK laws proscribe suppliers from controlling the final retail price,
allowing companies like Skoosh  to earn a lower margin and sell rooms at
cheaper prices.

Rate parity, as most industry observers, know is a relatively recent development brought about by the growing strength of the Online Travel Agencies and has been rapidly embraced worldwide in the industry as essential for maintaining transparency to the customer. But that has curtailed the ability to price discriminate based on buyer preferences resulting in erosion of margins, particularly in recessionary times with some OTA behemoths taking significant cuts in commissions with the hotel having no ability to price up to compensate for it.

Not all OTAs and distribution channels are created equally and their output for each hotel varies based on the hotel as well as the market within which the OTAs dominate or not. What's more some channels have features that allow the consumer to shop via price and features (priceline's hotel freebies feature). That ought to allow hoteliers to offer differing rates based on consumers' ability and willingness to pay instead of putting the onus on them to offer the same rate to consumers over a retail medium they have decreasingly (and depressingly) little control over. Ultimately, the idea of rate parity militates against the very premise of the internet – the notion of comparison shopping. A hotel consumer today ends up with the same "best rate guarantee" regardless of which distribution channel he/she looks at. That certainly is not true of electronics, consumer goods and even less so for automobiles. There seems little reason for it to have such a vice like grip on the hotel industry.

Published by

Vijay Dandapani

Co-founder and president of a New York based hotel company for 24 years. Grew the firm to five hotels in Manhattan and also developed a greenfield project at MacArthur airport, New York. Speaker at numerous prestigious forums including Economy Hotels World Asia, Lodging Conference, NYU, Columbia University Real Estate Roundtable, Baruch College's Zicklin School and ALIS. President and ceo of New York City Hotel Association since January 2017.

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