Comment: The death knell for rate parity?

So the CMA has announced the launch of a monitoring project for hotel pricing. We’ve been here before.

By Elliott Pritchard, founder of ecommerce nut

So the CMA has announced the launch of a monitoring project for hotel pricing. We’ve been here before. It was all the way back in September 2010 that the UK regulator (then known as the Office of Fair Trading) released a statement confirming they were investigating issues of competition law around hotel bookings, after complaints from UKbased OTA Skoosh? subsequently citing Expedia, Booking.com and IHG.

It wasn’t until August 2013 that they concluded the investigation, with an agreement that hotels should be able to offer reduced rates to other OTAs, but only to ‘closed user groups’.

This was seen by many as an inadequate response and following a successful appeal lead by metasearch site Skyscanner (whose business model is based on a comparison of public rates, not closed user groups), the CMA agreed in September 2014 to take another look. There was hope that decisive regulation would follow but one year later the CMA closed its investigation without further action.Will things be different this time?

Well, for a start this latest project wasn’t initiated by the CMA. It is part of a European Commission initiative and is being delivered at the same time by regulators in France, Germany, Belgium, Hungary, Ireland, Italy, the Netherlands, the Czech Republic and Sweden.

There is currently an inconsistent approach to rate parity regulation across those markets. France outlawed rate parity clauses entirely in July 2015 under the Macron Law but they are the only European country to have gone that far.

Nevertheless, it was the attention of regulators (especially those in France, Germany, Italy and Sweden) which prompted both Booking.com and Expedia in 2015 to remove ‘broad’ rate parity (or ‘Most Favoured Nation’) clauses, which prevented hotels from offering cheaper rates to other OTAs.

However, ‘narrow’ rate parity clauses which prevent hotels from offering cheaper rates publicly on their own website (as opposed to offline or through a loyalty scheme) still persist.

So what’s the problem?

Booking and Expedia’s concession didn’t change things a jot. Sure, hotels are now free to offer Expedia a cheaper rate than Booking.com for instance, but given that they can’t offer that cheaper rate publicly on their own website they’d be undercutting their direct rate, so why would they?

Furthermore, the OTAs have other ways of securing rate parity. Participating in Booking’s Preferred Programme for instance is conditional on giving them the best rates. Expedia for their part have been seen to hide photos and reviews in their listings for hotels that don’t play ball (a practice referred to as ‘dimming’).

What can we expect?

Most commentators expect that rate parity clauses are on the way out in Europe, but it’s unclear what the timescale will be and how Brexit will affect the UK’s legislation in this area. One thing is certain? that the wheels of justice turn slowly, so it will be some time before we know the answers.

The monitoring project isn’t expected to be completed until the end of 2016, so it’ll be next year before we can expect any new legislation to be tabled and likely beyond that before we can expect it be ratified and implemented.

Meanwhile we can expect the limits to be tested, with discounted hotel member rates becoming ever more public. OTAs understandably want to know that they’re investing their marketing funds in, and directing their users to, properties that offer the best rates. However, hotels should have the freedom to control their own pricing by channel, especially if that means a better deal for the consumer.