Hotel pricing anti-trust probe was flawed, claims Skyscanner

The Office of Fair Trading was accused of failing to appreciate the significance of metasearch in the travel sector when it agreed a resolution in an anti-trust investigation into hotel room pricing.

In January the OFT (now the Competition and Markets Authority) announced it had come to an arrangement with Expedia, and Intercontinental Hotels Group (IHG).

This agreement meant a two-year investigation into allegations that these firms illegally set hotel prices stopped short of a full infringement investigation after they agreed to make concessions.

However, Skyscanner objected to these concessions claiming they not only allowed “residual” competition restrictions to remain but introduced a new one preventing the advertisement of available discounts.

A two-day Competition Appeal Tribunal hearing started in London yesterday, as Skyscanner sought to quash the original decision by the OFT and force the CMA to re-open the case.

Expedia, and IHG agreed that deeper discounting could be allowed, but only to closed user or loyalty groups of previous customers, and only after they had made one full price room booking.

It was also agreed that the level of discounting should not exceed the amount of commission paid to online travel agents.

Although the investigation originally focused on three firms the case was seen to have wide-ranging implications for the entire sector with other OTAs expected to comply with the commitments in their dealings with hotel suppliers.

Skyscanner launched its legal challenge to the commitments agreed with the OFT after making its views known during a second public consultation, although it claims these were rejected as baseless.

Kassie Smith, counsel for Skyscanner, told yesterday’s tribunal hearing: “The OFT identified in its Statement of Objections a number of competition concerns.

“They then accepted commitments which left in place residual restrictions, namely you can only discount to a closed group only after a first full price sale is made and only offer discounts to the extent of your commission.

“We also saw it introduce an additional restriction[on advertising prices that are available]. Our objection is one of transparency and the ability to advertise the actual prices available.”

Smith cited a Phocuswright report into the European travel sector to underline the importance of metasearch or price comparison which was said to show one third of shoppers use such sites.

But she said when the OFT conducted consumer research into the commitments it proposed to agree with Expedia and metaseach was “strangely absent” from this qualitative study.

She also pointed out that the study involved just 30 members of the public ranging from occasional to frequent hotel bookers over four sessions in London.

Skyscanner argues that the OFT was wrong to accept commitments from the firms under investigation that did not go further than what might have been the outcome of a full infringement hearing.

The OFT (now CMA) agreed to the commitments under what is known as “procedural efficiency” meaning that if the parties are prepared to make concessions they can avoid a full investigation.

Smith said: “If a regulator accepts commitments that means that regulator and the parties being investigated do not have to go through a detailed decision making process the quid pro quo is that higher demands are made as to the appropriateness of the commitments.“Being able to avoid an infringement decision means the commitments must be manifestly appropriate and the court

[EU Court of Justice] accepts that they may go further than that which may be imposed as the result of an infringement.”

Skyscanner argues the commitments agreed were not “manifestly appropriate” in addressing the competition concerns which the OFT itself found and were set out in its Statement of Objections. This is the first time such a settlement decision has been challenged in the UK.

In its Statement of Objection, which the CMA agreed to release to Skyscanner only days before this week’s hearing after a long legal wrangle, Smith said the OFT had provisionally found the agreements entered into by Expedia, and IHG were “hard core” restrictions on competition.

She said it also found that there was “a commercial link between agreements that restricted price discounts and rate parity agreements”, which were widespread in the market and monitored and enforced by parties subject to those agreements.

Smith added that the OFT had concluded that there were real benefits to price transparency and the low cost of searching for hotel rooms online by customers but that this was being “countered by the combination of restriction of discounting agreements and price parity”.

In the light of these provision findings by the OFT, Smith said questions arise over whether the commitments agreed with Expedia, and IHG addressed its competition concerns.

Supporting Skyscanner in the tribunal is UK online agent Skoosh which brought the original complaint to the OFT.

Its lawyer Duncan Sinclair sought to undermine the entire legal basis on which the original commitments were agreed saying this was an important precedent because it would be the first time accepted commitments accepted will support the continuation of unlawful behaviour.

“Our contention is that, by accepting commitments with restrictions on competition, we’ve moved a long way from manifestly appropriate procedural efficiency,” said Sinclair.

Counsel for the CMA Kelyn Bacon said the decision in agreeing commitments did not amount to a formal finding as to whether there had been an infringement of competition law.

“It provides a pragmatic and effective way for the CMA to close a case where the parties have offered, voluntarily, commitments and the CMA accepts that these address the issues raised.”

Bacon argued the OFT [CMA] had more than met all its legal obligations in coming to its decision including conducting two consultations for longer than the legally required period.

And she denied the allegation that the commitments agreed with Expedia, and IGH amounted to residual restrictions but were a mechanism for allowing discounting to take place.

“These are the conditions under which the parties have offered discounting to take place. The OFT are absolutely not saying these are residual restrictions.

“The test is a matter of judgement for the OFT. It comes down to a rational point as to whether it can lawfully accept these restrictions as being appropriate. At the end of the day the question is one of appropriateness.”

Bacon said the OFT had not made the commitments binds but had set a minimum requirements under which discounting should be allowed.

The case is due to conclude today after which the three man tribunal panel chaired by Peter Freeman CBE will retire to consider its judgement.

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