Prohibition of Booking.com’s Best Price Clause Increases Price Differentiation and Availability of Hotel Rooms On Direct Sales Channels

In December 2015, the Federal Cartel Office prohibited the online booking portal Booking.com from imposing its best price clause. Against this background, researchers from the Mannheim-based Centre for European Economic Research (ZEW) in collaboration with external researchers have investigated the impact of best price clauses on the use of different sales channels and on pricing decisions of hotels. The study has shown that in many cases, hotels do not comply with agreed best price clauses. Instead, they set a lower price on their direct channel than on large online travel agents where they also offer rooms. The study has also found evidence that this might be occurring more frequently since the prohibition of Booking.com’s best price clause came into effect. In addition, since the Federal Cartel Office prohibited Booking.com from using this clause, the researchers have observed an increase in hotel room offers via direct channels where prices tend to be lower. At the same time, there has been an increase in hotel room offers on Booking.com as well.

Under best price clauses of online travel agents, hotels may not offer better booking conditions and prices on other channels. For the purposes of the study, the researchers analysed data on listing and pricing decisions from several thousand hotels worldwide in the period between January 2016 and June 2016. The study uses data from a travel search engine which compares information from different online travel agents as well as hotel room offers via direct channels.

According to the study, approximately one third of the hotels set their prices lower on the direct channel than on Booking.com. This suggests that hotels prefer to receive bookings through their own website rather than via Booking.com. One reason for this are the comparatively low variable costs associated with an additional booking. By offering hotel rooms via their own website, hotels do not have to pay commission fees charged by online travel agents.

Increased use of online travel agents and wider price dispersion

In a second step, the researchers analysed how the behaviour of German hotels has changed after the prohibition of best price clauses in February 2016. The narrow best price clause only impedes hotels from setting lower prices on their direct channels; other online travel agents, however, are excluded from the price parity clause. In the study, the researchers compared German hotels with hotels in other countries where Booking.com’s best price clause has not been prohibited. The researchers found that German hotels have increased their use of direct channels in the observed period. In comparison to other European countries, the share of hotels in Germany using direct channels increased by five percentage points. At the same time, the share of hotels offering rooms on Booking.com also increased. In the six months following the prohibition of the best price clause, the share of German hotels using Booking.com increased by approximately 20 percentage points. Additionally, the study found that these hotels often set lower prices on their own website than on Booking.com and that the direct channel was often the cheapest sales channel (with an increased frequency by 5 percentage points). During the same period, Booking.com itself was more rarely the price leader.

"These findings suggest that the best price clause imposed by Booking.com restricted hotels in their pricing decision behaviour and possibly also restrained the competition between sales channels," explains Ulrich Laitenberger, ZEW researcher and co-author of the study. The observation that hotels have increased their number of offers on Booking.com after the ban does, however, show that the prohibition of its best price clause might partly also have been beneficial for Booking.com.

For further information please contact

Dr. Ulrich Laitenberger, Phone +49(0)621/1235-185, E-mail laitenberger@zew.de