A Zagat for hotels

While the French and hotels are unfortunately in a salacious limelight there has been a real and existential (for hotels) legal wrangle afoot in France involving online travel agencies for over a year. The French government recently decided to add its heft to the plaintiff, the country's hotel association, Synhorcat,, in the legal action against  Expedia and three of itswebsites, Expedia.com, TripAdvisor.com and Hotels.com. The seemingly diabolical (if true) accusations in the lawsuit suggests that the OTA giant claimed hotels were sold out when, in fact, they were not. It also alleges that they deliberately alter promotional prices and tack on false phone numbers on their sites leading customers to their own call center rather than the hotels' numbers.

While the lawsuit against Expedia is presently confined to France with hearings due to take place later in July its implications are decidedly worldwide as its heart is the issue of customer choice and the viability of many in the hospitality industry.

Weighing in on customer choice as something that is actually enhanced by the presence of cyber-mediaries (OTAs) is a recent paper by two researchers from Israel. The two scholars believe that third-party experts "can help sort out the information for the potential buyers and claim that online travel agents such as Booking.com play an important role in building (a) hotel's reputation and encourage hoteliers to put effort into service quality."

The Israelis' research paper purports to "provide empirical evidence that information supplied by past guests through the OTA generates a price premium for hotels with good reputations." The authors suggest that "adverse selection  (negative results due to asymmetric information availability)  and its inevitable market inefficiency is more common in geographically extended markets, such as hotel markets" leading to poor choices for consumers. They suggest that there are two ways to mitigate the adverse selection problem: by selling goods through intermediaries such as OTAs or "professional certifiers" as done by Mobil or AAA or in their case, government certifiers. 

While the paper concludes emphatically in favor of the OTAs with a principal plank of its analysis based on the fact that reviews in OTAs are limited to those that have used the service and stayed in the hotels, the French lawsuit clearly points to problems with the veracity and integrity of OTAs.

In what would be richly ironical if true, Expedia says that some hotels "discriminate against guests depending on the booking channel they used to book the hotel"  by giving those guests "preferential treatment in everything from standard of rooms, to upgrades, over guests that booked through an online travel." Left unsaid was anything about incorrect rates or telephone numbers as alleged by the French.  What may be clear is that the transparency needed to avert adverse selection is likely not enhanced by the dominance of the OTAs. Perhaps what really is needed is a Zagat for hotels.

 

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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