News
Booking platforms may have helped create growth in the Danish hotel business
Digitization has created opportunities for the tourists and the hotels. Recent years have seen significant growth in the Danish hotel industry, and booking platforms have likely contributed to the increased demand for overnight stays in Denmark. The booking platforms are of great value to Danish consumers, but have also created some challenges.
The analysis 'Booking platforms, hotels and consumers' shows that booking platforms provide benefits for both consumers and hotels. The Danish Competition and Consumer Authority prepared the analysis at the request of the Minister for Industry, Business and Financial Affairs in March 2018.
Among other things, the platforms make it easier for consumers to obtain and compare the rates of a given hotel, and the hotels have access to more potential customers. Altogether, about 30% of all Danish hotel bookings take place on the two largest platforms, which are Booking.com and Expedia. Thus, most bookings still take place outside of the major booking platforms.
More than one third of the hotels are not aware that the largest hotel booking platforms in 2015 eased the price clauses that are included in the agreements of the platforms with the hotels. Greater awareness of the new clauses can provide the hotels with a better basis for negotiating commission rates and other terms with the booking platforms. On average, the hotels paid the largest booking platforms a commission of 15-16% in 2017. The rate has been stable since 2013.
As a rule, the hotels determine the room rate on the booking platform, and generally a commission only applies when and if the consumer is renting the room through the platform. A hotel can use multiple platforms and only pay a commission to the platform on which a customer rent a room. Both hotels and consumers can “multihome” (use several platforms) without significant additional costs, which ensures a certain degree of competition in the market.
The Competition and Consumer Agency previously had concerns about the price clauses of several booking platforms because they prevented the hotels from offering better terms via other sales channels. Since the change in 2015, it is only on the website of the hotel that the price may not be lower than the prices displayed on the platforms. For instance, the new more gently clauses allows the hotels to offer different prices on the platforms and to offer lower prices if the consumers are contacting the hotel.
The analysis shows that some hotels set different room rates on different platforms. Thus, they can contribute to creating competition between the platforms. At the same time, there can be potential benefits for consumers by comparing prices on multiple platforms.
Consumers who use booking platforms have significant advantages in terms of saved search costs, and they find the platforms very useful. Nevertheless, there are some challenges. For example, it may be difficult to figure out the booking platforms' ranking of the hotels, partly because the hotels in some cases pays for a good ranking. However, three out of four consumers sort their search results, thus making it less possible for the hotels to buy a better ranking.
The booking platforms also use other means that can influence consumer choice. About one third of consumers have felt pressured into making a quick decision when using a booking platform. This may for example, be a consequence of the booking platform stating that there are only a few rooms left. In addition, approximately 40% of consumers have been astonished at extra fees, both on the booking platforms and at the hotels. Instruments that unnecessarily put pressure on consumers or which do not present important information on, say, prices until very late in the process, may cause consumers to make choices that are not optimal.
For further information, please contact the Danish Competition and Consumer Agency's Communications Manager, Hanne Arentoft, on telephone +45 41 71 50 98.
Background on the competition authorities' work in this field:
Until the summer of 2015, several European competition authorities, including the Danish Competition and Consumer Authority, were concerned about the booking platforms' 'broad' price clauses with hotels. The concerns arose from the fact that according to the clauses, a hotel was not allowed to offer better terms (such as price, number of rooms, room category, etc.) via other sales channels, including competing booking platforms, than the terms, which the hotel offered the respective booking platform. The competition authorities were concerned that the clauses restricted competition between the booking platforms.
In cooperation with the EU Commission, the competition authorities in Sweden, France and Italy negotiated commitments with the booking platforms to remove those parts of the clause, which gave rise to competition concerns. The negotiations resulted in the booking platform booking.com pledging to these countries to change the clause. Subsequently, both booking.com and Expedia / hotels.com eased the terms of the agreement and introduced the new 'narrow' price clause in most European countries – including Denmark.
Today, the booking platforms only have a so-called 'narrow' clause that concerns the room rate. With this clause, the booking platform requires that the hotel may not advertise a lower price on their own website than on the respective platform. Without the clause, there is a risk that the business model of the platforms (and some of its consumer benefits) may be undermined by the so-called free riding problem - consumers searching for the hotel on the platform and then going directly into the hotel's own online website and book at a lower price. The narrow clause, on the other hand, allows, for example, consumers to find a hotel on a search portal, and then contact the hotel and negotiate for a lower rate. Hotels can also advertise in newspapers etc. with offers where the rate is lower than on the platform. The hotels are also free to compete among themselves on price and terms, regardless of whether a booking platform uses a narrow price clause, and similarly, the hotels can use several platforms at once and yet pay only for advertising on the platform through which the room is booked.
If the narrow clauses were banned and if, for example, the current business model (with commission payment upon booking a room) were replaced by a subscription model, then multihoming would probably be more expensive, as the hotels would have to pay to be present on each of the platforms, whether a room is rented or not.
In April 2017, the EU Commission published a study of the area. The main conclusion was that the competition between booking platforms has to some extent moved in the right direction after the change to the 'narrow' clauses.
Today, the competition authorities in the vast majority of member states have not intervened against the narrow price clauses, just as most of the member states still allow the narrow price clauses introduced in the summer of 2015. However, some countries have introduced additional regulation.
The European competition authorities have agreed to monitor this area and, after an appropriate period, carry out a new assessment of the competitive situation. The Competition and Consumer Agency continues to monitor the development between booking platforms and hotels in Denmark to ensure that the price clauses do not unnecessarily restrict competition.