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30 June 2016
In July 2013 the Hungarian Competition Authority (HCA) initiated a sectoral inquiry into the online accommodation booking market. According to the HCA, the underlying reason for the inquiry was its identification of market tendencies that had a potential distortive effect on competition. The HCA recently published its final report, which provides valuable insight on the market and online travel agency (OTA) practices. The Hungarian inquiry was part of a series of proceedings initiated by several EU member states.
This update provides insight on the most interesting aspects of the market and the HCA's key findings.
OTAs have been present in the Hungarian market since the early 2000s, serving as a bridge between accommodation providers and consumers. Connecting these two sides of the market has had several positive effects – the most important of which is greater transparency. This structure is beneficial for consumers as it takes them significantly less time to find a service provider that suits their needs. OTAs benefit from this cooperation by way of the commission that they receive from accommodation providers, which is between 10% and 30% of bookings made through their websites.
While the online accommodation booking market is considered to be an emerging market, it is also showing signs of concentration. At present, the corner stones of cooperation between accommodation providers and OTAs are the price parity clauses included in contracts between the two parties. These parity clauses are also what concerned the HCA and other EU competition authorities.
The price parity clauses included in agreements between accommodation providers and OTAs were a simple but effective way for accommodation providers to ensure a uniform price across all sales channels. As the HCA and several other competition authorities have highlighted, the provision also ensured a lack of competition between OTAs. This also prevented accommodation providers from offering lower prices on OTA websites in exchange for lower commission rates, or from providing discounts to consumers reserving accommodation with them directly – for example, through their own website or by phone.
OTAs argued that such clauses were necessary to protect their investments and prevent consumer free riding (ie, using OTAs as free search engines, but subsequently reserving accommodation directly through a hotel).
OTAs responded to the inquiries by introducing narrow price parity. Narrow price parity reduces the restrictions on hotels – in particular, those precluding them from offering better prices on their websites than on an OTA's website. However, such narrow parity excludes all other sales channels, including OTA websites and other means of direct booking (eg, by phone or email).
Narrow price parity has generally been accepted as a viable solution with the exception of Germany and France, both of which have rejected parity clauses in general.
The HCA outlined that while price parity in its original form is restrictive, narrow price parity – when considering the risks of free riding – may be a valid solution. Narrow price parity enables hotels to adopt a more complex pricing strategy while considering the potential benefits and costs of different sales channels. Further, narrow price parity may increase competition between OTAs – for example, in the form of discounts on their commission rate.
The HCA explained that larger OTAs (including the major Hungarian player szallas.hu) have introduced narrow price parity, which "smaller players will hopefully follow". As the HCA has established the restrictive nature of the price parity clause, market players that fail to comply may be subject to proceedings.
The HCA further outlined its expectation that competition between OTAs will increase. The HCA will monitor such trends by way of a European Competition Network working group. The working group will prepare a report by the end of 2016 and the HCA's current conclusions may be reconsidered accordingly. Therefore, while one chapter of the EU-wide investigation has ended, the sword of Damocles still hangs over OTAs.
For further information on this topic please contact András Nagy at Schoenherr by telephone (+36 1 8700 700) or email (email@example.com). The Schoenherr website can be accessed at www.schoenherr.eu.
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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