Hotel price fixing investigated by Office of Fair Trading

22 April 2011

Here's the dictionary.com definition of a cartel: "An international syndicate, combine, or trust formed especially to regulate prices and output in some field of business."

Here's what the The Office of Fair Trading (OFT) are currently investigating, according to the Telegraph: major hotel groups have been ordering travel agents and websites not to sell rooms at discounted prices, and are suspected of 'secretly agreeing a system called “rate parity” - meaning rooms are sold for identical prices by different agents and the hotels.'

An industry whistleblower has come forward with documented evidence of the alleged price fixing, which shows hotel groups threatening websites with withdrawal of their rooms if they don't comply. Amongst those hotels chains mentioned by the Telegraph are the Radisson, Copthorne & Millennium, Thistle and Starwood groups.

Bitterwallet - Radisson logo
When a third party sells hotel rooms to the public, there is usually a chain of supply involved - wholesalers buy the rooms from the hotels, and then sells them onto consumer-facing distributors. Every link in the chain has its own mark-up, which means hotels may only see 50% of the revenue when rooms are sold on third party websites. If a website then reduces its own profit and offers its own discounts, they undercut the hotel's direct rates, meaning the hotel loses sales and sees far less profit for the same room (direct sales don't involve paying a wholesaler or a distributor, so the hotel takes 100% of the money).

By demanding prices are fixed across all distributors, hotels effectively control reduce their competition in the market, make more direct sales and therefore more profit. That's where hotels are allegedly coming unstuck; they've already sold the product but are now suspected of fixing the final retail price too, which could be a breach of EU and UK competition law. The OFT is reported as saying the investigation is at “a relatively early stage”, but it considered the matter "an administrative priority and is pursuing the investigation further.”

TOPICS:   Travel   Economy

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