Beware of competition law infringements

07 September 2012
Beware of competition law infringements

The Office of Fair Trading's investigation into hotel room pricing may encourage operators to improve their direct online sales operations and reduce dependence on online travel agents. Miles Trower explains

The problem
The Office of Fair Trading (OFT) is pursuing two major online travel agents (OTAs) - and Expedia - along with InterContinental Hotels, for alleged competition law infringements relating to the pricing of hotel rooms. The present case, while not yet proven, is a warning sign for businesses in this sector. However, it may also represent a useful opportunity for certain players to renegotiate terms or even adjust their routes to market.

The law
The Competition Act 1998 prohibits agreements between independent companies that restrict competition in the UK. This includes certain restrictions on price.

The OFT wants consumers to benefit from being able to shop around online and get the best deals from intermediaries. It also wants to encourage new businesses to enter the market.

The OFT believes these aims are being harmed as a result of certain hotels controlling room prices through restrictive deals with OTAs.

Expert advice
While the OFT's aims appear straightforward, the nature of its challenge is not entirely clear. If it wishes to show that InterContinental entered into separate anti-competitive resale price maintenance agreements with the two OTAs, thereby restricting their ability to discount, a core element of the offence involves the issue of reselling. If there is no resale - but rather the OTAs acted as agents for the hotel group's rooms, earning commission for sales achieved through their websites - then the OFT's case appears flawed. In other words, why shouldn't a hotel control the pricing of its own rooms sold through agents?

Of course, if there is a resale the OFT may be in a stronger position. Even then, the case may not be straightforward given the competitive environment for hotel rooms and the fact that OTAs may assume little commercial/occupancy risk. This might suggest that the relationship is still more akin to "agency", rather than a traditional resale arrangement.

If the OFT tries to infer a wider anti-competitive price parity agreement between InterContinental and multiple OTAs, it will have to demonstrate the existence of such an agreement or understanding. Trying to infer a multi-party, anti-competitive agreement to that effect, where there is no evidence to support it, is a big hurdle.

On a positive note, as far as hotels are concerned, the risks surrounding any pricing controls might be used to justify a reversion towards a retail (agency) model, with a possible reduction in OTA margins. As regards OTAs, the case might reinforce arguments calling for the removal of certain pricing restrictions, if this is a commercial objective.

Whatever action is taken by the industry to avert the risk of further competition scrutiny or sanction, the OFT's investigation may have wider consequences. It may prompt hotels and OTAs to adopt different commercial strategies. For example, it may encourage hotels to improve their direct online sales operations and reduce their dependence on OTAs. That said, the benefits associated with OTAs may mean that hotels are reluctant to check-out of this channel altogether.

Check list

â- Having read through the relevant contacts, operators who still have concerns should take expert legal advice, including where any agency or reseller relationship is unclear.

If operators are found to be limiting competition they risk, among other consequences, substantial fines, which can be up to 10% of their global annual turnover. There is the possibility of immunity from fines for firms that co-operate with the OFT, and in this case it has been reported that Expedia is exploring immunity with the OFT (should fines eventually be imposed) in return for its co-operation. This is a sensible step, whatever the outcome.

In this particular case, it may be difficult for the OFT to prove that any competition infringement has occurred. Indeed, even if wrongdoing is established, this may be one of those cases where commitments, as opposed to fines, are more suited to a successful resolution.

Miles Trower is a partner and specialist competition lawyer at TLT

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