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A battle for rock-bottom prices: the state against Booking.com

Sven Krumrey

Hotel portals are usually a delightful convenience. You enter the location where you'd like to stay plus how many, add the date and, just like that, you're presented with a broad selection of overnight accommodations. If, however, a handful of portals process 75% of all direct bookings, this can quickly lead to monopoly positions with the potential for abuse. It can even prompt the courts to take action over best price guarantees.

Booking a hotel room takes just seconds now

I'll admit it: I like Booking.com because they're masters of exaggeration. They just love to sell (better: procure) and pull out all the stops. Even the most run-down hovel in the middle of nowhere is touted as "Highly sought after, only one more available!" or lined with comments like "Already booked 4 times in the last hour!" and, my personal favorite, "5 persons are currently watching this". The thought of people scrambling to rent a tiny room with a toilet in the hallway housed in a gray prefab definitely brings a smirk to my face. It's obvious they're exaggerating and trying to build up pressure. The same pressure applies in conjunction with the price guarantee that these companies like to advertise. What may sound like a crazy bargain to us customers often turns out to be the opposite.

Let's imagine a hotel that has just made a contract with a portal like Booking.com. The hotel owner knows about the market power of Booking, HRS or Expedia (the big three in the industry) and is hoping for good business. Guaranteed prices are often part of these contracts meaning the hotel cannot rent out rooms for less through other channels (Internet portals, telephone or by word of mouth to walk-in customers). If you know about the irregular occupancy rates of many hotels and add to that the considerable commission fee of 13% that portals like Booking demand, you'll quickly realize that these aren't the best prices per se but the best contractually allowed prices. As punishment, hotels that flout these stipulations end up at the bottom in the list of search results and can forget about future successful transactions with the affected portals. Amazon tried something similar once but quickly backpedaled after strong opposition from the media and the FTC. Booking.com and others use a different approach: they pretend to be small.

Also available as an app, naturally

When the Swiss parliament recently banned such price clauses in contracts between online booking platforms and hotels, Booking.com gave the impression they were a weekend project between two students rather than a part of the billion dollar US company Priceline. It would have certainly helped them had they adjusted the info on their Internet site that proudly claims they are "one of the largest travel e-commerce companies in the world" with "more than 15,000 employees in 70 countries worldwide" before avidly denying accusations of market domination and of being in a privileged position. 1,500,000 room night reservations every day also doesn't sound like they're just a minor player in the business.

Antitrust commissions have long been familiar with the strategy of playing down one's market relevance which is why legal proceedings are underway in Germany, France, Italy and many smaller countries. So the attempt to put contractual shackles on free businesses through sheer market dominance is met with resistance. What's problematic is that judgments like the one in Switzerland mostly target individual clauses not companies. This means smaller portals will also be unable to work out guaranteed low prices with hotels in the future. The world will surely keep on spinning without best price clauses and the big players will survive, but smaller companies will take a big hit.

In a remarkable reaction to the bill, companies lamented that hotel prices would now skyrocket. Have they thought about who's paying the 13% commission I wonder? It's certainly not the hotel owners who'll likely pass it on to their customers. The companies went on bemoaning the alleged curtailing of commercial freedom - but what about the hotel owners' freedom to set prices without pressure from portals? The idea that prices would now become astronomical is ridiculous. Even without special clauses, customers can easily compare offers including prices and benefits in just seconds. Lobbyists are probably the only people who believe the market cannot exist without quasi-monopolists. I for one won't be able to suppress my laughter should I find that prices have now come down by 13% for some hotels.

What I would like to know: do you use hotel portals to book your overnight stays or do you reject this new type of accommodation service?

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