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Anticompetitive practices in the tourism mediation industry

Translated by Kyle Mayl

Market structures like monopolies and oligopolies entail social costs for the whole of the economy. These costs stem from the market power enjoyed by monopolists and, to a lesser extent, by oligopolists. Public intervention through different policies can be justified to eliminate or at least limit these losses of efficiency. Among the available policy options we can mention antitrust or competition law.

In this article, we mention various examples of anticompetitive practices in the tourism mediation industry that should matter to us, especially given the social costs they entail. Certain online tourism intermediaries like search engines, OTAs (online travel agencies), and traditional travel agencies have committed illegal practices to limit competition in the tourism mediation industry. These practices include everything from collusion to abusing market leadership and the distortion of free competition.

Markets and Well-being

When studying market structures involving market power (e.g., monopolies or oligopolies) in introductory economics or microeconomics classes, we must investigate the effects of market power on well-being.

If we compare a monopolized market to a situation of perfect competition, we can come to the conclusion that monopolies cause a loss of efficiency in the economy as a whole.

We therefore find ourselves facing a market failure that would justify state intervention to eliminate or reduce the deadweight loss that the monopoly generates. This can be done by impeding the rise of monopolies through antitrust laws or by limiting negative effects through economic regulation.

In an oligopoly, the oligopolists’ behaviors will depend on the legal framework that sets the limits of their actions and of their capacity to work together without formal agreements.

Focusing on this legal framework, we can return to antitrust policies, or competition law. These policies are regulations and laws that prohibit actions that limit or could limit competition. Their objective is to change the structural conditions of a market to avoid monopolies or excessive market power.

Limiting Competition

Perhaps the examples that come to mind most quickly when thinking of anticompetitive practices are those having to do with large technology companies like Microsoft, Apple, or Google. Perhaps we can all remember these companies’ legal battles with the European Commission, which resulted in sanctions for abusing market leadership or distorting free competition through unfair actions.

In the case of the tourism sector, we might remember the anticompetitive practices of transport enterprises, like an airline or a railway company. But we are going to focus on tourism mediation, which we will do by taking a look at Google.

The Gatekeeper

Google is not a tourism company, but it is an internet giant. This means that it poses a competitive risk to a series of online intermediaries, but also to other intermediaries that already existed in the tourism market, such as global distribution systems.

In recent years, Google has developed a series of tools that facilitate searches for tourism products. These products have posed a serious threat to the tourism mediation companies mentioned above. The first of these tools were the metasearch engines Google Hotel Finder and Google Flights, followed by reservation tools (Book on Google, launched in 2015), a virtual assistant, instant messaging using bots, a trip planner, etc.

This expansion, which has involved incorporating almost all tourist services into Google’s search engines, has not been without conflict; on occasions, it has been said that Google’s practices limited free competition.

An example of Google’s impact on the tourism industry in this regard is this sanction against the tech giant from French authorities for deceptive hotel ratings.

Tourism Mediation

As we were saying, Google acts as a gate of entry to a sector of the tourism mediation industry that changed completely with the rise of the internet. Today, the sector seems quite like a duopoly.

Two large business groups dominate the online tourism mediation market: Expedia and Bookings Holdings (formerly Priceline). These businesses own metasearch engines, carry out functions similar to Google, and serve as online travel agencies.

In addition to these two large companies we can add another, like TripAdvisor, at the time property of Expedia, or also the principal enterprises of the Chinese market, like Ctrip.

This online tourism mediation environment is seriously threatened or influenced by what is known as the GAFA empire, composed of Google, Apple, Facebook, and Amazon, which are also known as gatekeepers. These are the large technology companies that control access to the internet and to mobile devices.

We must not forget other main players like Airbnb, whose effect on the tourism market in general, in both economic and legal terms, would provide enough for various articles.

The Problem With Price Parity

These tourism mediation companies have not been exempt from controversy either. We can name various anticompetitive practices committed by these business groups or by one of their affiliates.

One of the most controversial issues relates to the problem of price parity. This situation has been occurring for a couple decades, putting rival hotels in checkmate by reducing sales dependence on online travel agencies (OTAs) and strengthening the direct distribution channel.

At this point, we can also discuss abuse of market leadership or other anticompetitive, unfair practices to distort free competition.

For example, the Spanish Association of hotel directors denounced Booking for imposing price parity clauses. These are, in other words, clauses that guarantee that the best price is on Booking’s website. In October 2022, the Spanish competition authorities (CNMC) initiated a sanctioning record against the OTA.

A Few Cases Involving Traditional Intermediaries

Up to now, we have discussed online distribution and we have referenced general search engines and online travel agencies as the main perpetrators of anticompetitive practices.

However, we must not forget certain anticompetitive practices in the traditional tourism mediation sector. We will now discuss travel agencies and tour operators.

In the case of the Spanish market, we can mention a series of instances in which the CNMC identified collusive conduct committed by groups managing travel agencies or tour operators. In particular, we will mention three cases.

First, a case involving independent travel agency management groups that committed collusive acts over a period of 7 years.

Second, a cartel of travel agency management groups that lasted 12 years.

Finally, a case of anticompetitive practices committed by bidding companies in the public contests of Imserso (a public agency that organizes programs related to tourism and hydrotherapy for elderly). This case goes back to the 1990s, but has echoed until very recently.

The case of Imserso is a soap opera that reaches into the present day. This resolution from the National Court from May 2021 is proof of that.

References

The practices sanctioned by the Spanish National Markets and Competition Commission (CNMC in Spanish) were analyzed in greater detail in Benavides Chicón, C. G. (2019). El sector de la intermediación turística: Una visión desde la perspectiva de la política de la competencia. En E. Olmedo Peralta (Dir.). Técnicas Cooperativas para la Aplicación del Derecho de la Competencia en la Unión Europea y España. Aranzadi.

An explanation in video was uploaded to this blog in a previous entry.

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