Relaxing whilst doing Competition Law is not an Oxymoron

On antitrust and hotels

with 3 comments

We have discussed about hotels in previous posts (notably when I shamelessly unconsciously advertise my parents’ hotel (pictured above); you see? it just happened again!) (btw, top floor third window from the left is the room where I grew up). A couple of months ago I published a short piece on Competition law in the hotel sector in the industry’s magazine in Spain in which I highlighted (in, let’s admit it, a rather simple way), some of the interesting competition law issues that may arise in this sector; here are a couple:

OFT’s investigation on price-match guarantees

I’m following with interest the OFT’s investigation on price-match guarantees in the hotel sector (again, out of personal geeky interest, nothing professional). As you may know, in July the OFT addressed  a statement of objections to Expedia, Booking and InterContinental Hotels challenging agreements that are said to restrict online travel agency’s ability to discount the price of room-only accomodation. The  OFT considers that “the alleged infringements (…) could limit price competition between online travel agents and increase barriers to entry and expansion for online travel agents that may seek to gain market share by offering discounts to consumers“.  It notes that it “limited the scope of its investigation to a small number of major companies, with a view to achieving a swift and effective outcome. However, the investigation is likely to have wider implications as the alleged practices are potentially widespread in the industry“.

Keep an eye open, because this is a case which may contribute to altering how we think about agency agreements and price matching guarantees. In the meanwhile, the OFT has published a most interesting report on “price match” or “lowest price” guarantees that makes a good read (that is, if you really have nothing else to do..).

A candidate to the worst antitrust development prize

In April 2011 we wrote a post announcing that there was an ongoing investigation that could yield a strong candidate for the Worst Antitrust Development Prize. Last week our forecast materialized. The Spanish competition authority (CNC) imposed a 150,000 euro fine on the Confederation of Spanish Industries, and an individual fine of 50,000 euro fine on the President of its Tourism Committee, a well known Spanish and former President of F.C. Barcelona (for full disclosure, my firm has no interest in this case, but I do know the person who was sanctioned).

The sanctions have been imposed because this person told the press at an industry fair that he thought there was a margin for hotels in certain cities of Spain to increase rates. No more. Admittedly, the fact that this personal opinion was accompanied by an inconvenient joke -“if there’d be someone from the competition agency here I’d be sanctioned“- may not have helped much…  Later on, he was asked by a newspaper whether hotel rates would increase in the course of 2011. He responsed that rates had gone down 20% since 2007 and that a 6-7% increase could be reasonable, but that different hotel owners had different views.

If you ask me, such a statement can very hardly have led to any sort of collusion. There are thousands of hotels in Spain and hundreds of relevant markets evolving under different conditions, so this had nothing to do with setting a focal point to facilitate tacit collusion. Nonetheless, just as I feared on my previous post, the CNC decided to resort to competition authority’s favorite shortcut: the “object label”:

According to the CNC’s decision, one only needs to verify the content, author and diffusion of the statement. It explains that “it is not necessary to examine additional factors, such as the context in which the conduct takes place, the intention, the degree of furtherance, or the relevant market”.  This paragraph alone makes this decision a good candidate to the “worst antitrust development prize”.

And, but the way, this “collective recommendation” was until now unknown to most hotels in Spain. The CNC has just ensured that everyone hears about it thus multiplying any potential effects. Now, in light of its new practice of sanctioning public authorities contributing to private breaches of the competition rules: should the CNC sanction itself for having acted as the loudspeaker and propagator for this alleged invitation to collude? 😉

Written by Alfonso Lamadrid

19 October 2012 at 12:38 pm

3 Responses

Subscribe to comments with RSS.

  1. Sorry Alfonso, but I believe some of the CNC prior cases on collective recommendations may qualify better for your prize than this one (in some of them, concerning basic staple foods, there was not even a % price increase recommendation). Indeed I would rather go for CNC’s decision in other areas rather than this….
    Anyway, I think your assessment that Gaspart saying that a 6-7% price increase “had nothing to do with setting a focal point to facilitate tacit collusion” is difficult to share. What -if not a focal point- was that?
    Moreover, concerning effects, the CNC went as far as trying to calculate potential impact….. “Aunque no sea necesario en este supuesto demostrar que la conducta ha tenido efectos, el Consejo ha podido observar, atendiendo a los índices de precios hoteleros que publica el Instituto Nacional de Estadística, que mientras la media de precios nacional fue descendiendo a lo largo del año 2011 produciéndose una caída del -0,1%, en Cataluña, Baleares y Canarias, que reúnen conjuntamente el 45% de las camas hoteleras de España, los precios medios experimentaron incrementos del 0,7% , 0,1 % y 2,4% respectivamente”.
    Finally, given that the Courts (Audiencia Nacional so far) have confirmed all prior cases on collective recommendations decided by the CNC (eventually decreasing a bit the amount of the fine), you may want to find other candidates for your “worst antitrust development prize”. In my humble opinion, and at least in Gaspart case, what the CNC has done is just strictly apply what is clearly forbidden according to article 1 of the 2007 Spanish Defense Competition Act.

    Paco Marcos

    22 October 2012 at 2:07 pm

  2. Hi, Paco! Thanks for the comments, and apologies for the late reply (deadline approaching).

    There are certainly other candidate cases, but I chose to focus on this one because (i) it is the one where effects are particularly unlikely given the markets’ atomistic structure; (ii) because my firm and I were involved in some of the food cases, and so I prefer to avoid commenting on them; and (iii) because it affects a sector and I person I know well.

    I still don´t think that speaking of a 6-7% increase can be regarded as a focal point aimed at facilitating tacit collusion. That would only have been the case had the market been an oligopolistic one,,which is not the case. The structure of this market makes tacit collusion practically impossible and implies that any attempt to set a focal point would have been unrealistic and condemned to fail.

    In fact, the paragraph you quote re effects stands as evidence ot my point: how could the mention to a 6-7% increase had been a focal point if the alleged effects were increases of 0,7%, 0,1% and 2,4%?

    I still fail to see why making a guess on how prices will evolve (particularly in a market where your guess cannot give rise to any effect) should be forbidden by the competition rules.

    Alfonso Lamadrid

    23 October 2012 at 11:15 pm

  3. What about the CEO of a leading firm in an oligopolistic market telling in a well-known daily newspaper that consumers could accept paying 25€ instead of 20€ monthly fees for their mobile subscription?

    Laure Durand-Viel

    31 October 2012 at 12:30 pm

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: