We are well into the holiday period and consumers are undoubtedly looking around for the best deal on last minute trips. Many booking sites guarantee that they offer the best price. But is that really the case? In a press release from 25 July 2013 the Bundeskartellamt, the German competition authority, made it clear once again that it does not believe that a best price guarantee on a booking site always results in the lowest price and may even be in violation of the prohibition of cartels.
Best price guarantee
The best price guarantee, also called price parity, usually means that a hotel must guarantee that the price it offers on a particular booking site is the same or lower than the price offered by the hotel itself or on other booking sites.
At the beginning of last …, there was some commotion about whether best price guarantees could be allowed on booking sites. Although Parliamentary questions were posed in the Netherlands, the Dutch Competition Authority (NMa), now the Netherlands Authority for Consumers & Markets (ACM), did not see reason to investigate. The British, Swiss and German competition authorities felt otherwise. It can be concluded from the press releases issued that they already had serious doubts at that time about whether these guarantees were permitted.
Position of the Bundeskartellamt
The Bundeskartellamt has since carried out further investigation into the lowest price guarantees offered by HRS, a large German booking site. This investigation confirmed that lowest price guarantees are in violation of the German and European prohibition of cartels.
According to Andreas Mundt, president of the Bundeskartellamt, this centres on an extremely fundamental question that relates not only to booking sites for travel, but also to commerce via online portals in general. After all, the lowest price guarantee offered by HRS is also offered by other operators of online portals (like Amazon). It can be concluded from a press release from 20 February 2013 that the Bundeskartellamt is now also investigating the best price guarantee Amazon requires of its traders.
According to the Bundeskartellamt, price parity clauses only seem beneficial to consumers at first glance. In actuality they impede competition between existing booking sites since competition on the price for hotel rooms is excluded. New, innovative parties are also impeded in entering the market. Andreas Mundt cited the sale of last minute offers via the smartphone as a new, innovative service. Because of the lowest price guarantee, hotel rooms cannot be offered more cheaply via the smartphone than on regular booking sites. The competition between the hotels is also limited. In actuality the hotels are no longer free to set their own prices. They cannot respond flexibly to new situations, such as the cancellation of hotel rooms, for instance.
The press release issued by the Bundeskartellamt last week is remarkable for two reasons.
First of all it is striking that the Bundeskartellamt believes that the price parity clause used by HRS is in violation of both the German and European prohibition of cartels. In the light of this it is surprising that the ACM saw no reason last year to investigate lowest price guarantees. We will now have to wait and see to what conclusions the British and Swiss competition authorities will come. The Bundeskartellamt wrote in its press release that it has close contact with other competition authorities in Europe on the subject of price parity. This suggests that the verdict on the permissibility of lowest price guarantees is being coordinated. According to The Economist, Expedia requested leniency from the British Office of Fair Trading (OFT) for its use of lowest price guarantees. Expedia is also taking a gloomy view of the future apparently. In any event the Bundeskartellamt is setting the trend.
What is also striking is that the Bundeskartellamt is not only looking at booking sites, but at commerce via online portals in general. So not only booking sites should be worried. It cannot be ruled out that lowest price guarantees used by operators of online portals (like Amazon) are generally in violation of the prohibition of cartels.
Eric Janssen, lawyer specialising in competition law