Platforms like Booking.com should no longer be able to prohibit hotels from offering more favorable conditions on other channels. The National Council decided on Tuesday – although the Federal Council and an external study doubted the benefit of the legal intervention.
Politicians want to protect the Swiss hotel industry.
You quickly get used to comfort. Book a hotel in Lugano, Interlaken, Paris or Sydney? Many consumers today take it for granted that they no longer have to call various providers to do this, as they did in the old days. It is much easier to conjure up a list of offers sorted by price on the screen on Internet platforms at the touch of a button. Such platforms are also useful for some hotels, which can present themselves to the public all over the world without any special marketing efforts.
But the Swiss hotel industry feels gagged by the large booking platforms – above all by the country’s leading platform Booking.com, which has its headquarters in the Netherlands and belongs to a US group. No hotel is forced into a contract with a booking platform, but according to critics, Booking.com & Co. mercilessly exploit their market power. Above all, contract clauses that prohibit hoteliers from making cheaper offers on other channels than on the contract partner’s mediation platform have been criticized.
Partial ban by Weko
A first restriction came in 2015. The Competition Commission (Weko) forbidden contractual clauses with which the three major platforms Booking.com, HRS and Expedia had prohibited the partner hotels from offering lower prices on other online portals due to significant impairment of competition. At that time, ComCo made no judgment on contractual clauses with which the portals “only” prohibit hotels from offering lower prices on the hotel’s own website; a conclusive assessment of this is not yet possible. Parliament subsequently ordered the Federal Council via Motionto bring a legislative project for a general ban on price maintenance clauses.
The Federal Council did not want the job, but it dutifully fulfilled it. According to the proposed law, such price maintenance clauses in contracts with hotel brokerage platforms would be “unfair competition” and therefore void. The National Council expanded the template on Tuesday. In addition to price maintenance clauses, he also wants to ban other parity clauses. In any case, offers from hotels should be able to differ from the appearance on a brokerage platform not only in terms of price, but also in other respects – for example in the type and number of rooms offered, cancellation conditions and additional services.
The proponents put forward two main reasons for the law encroaching on freedom of contract. First: Many hotels are in fact at the mercy of the market power of the large international booking platforms, which is why they want to protect Swiss hotels by banning “lock-up contracts”. And secondly: Many other European countries also have a ban, which means that local hotels are currently disadvantaged compared to their foreign competitors.
77 percent of 28 percent
According to the recent survey In 2021, around 63 percent of guests in Swiss hotels booked directly. The proportion of online brokerage platforms was 28 percent. Booking.com secured the majority of the 28 percent piece of the pie (77 percent). Expedia brought it to just under 12 percent and HRS to 3 percent. The basic brokerage fee at Booking.com averaged 13.3 percent. At Expedia, the fee was almost a percentage point higher.
Philipp Bregy, representative of the Valais center, explained why politicians find the discussed legal encroachment on freedom of contract attractive with a rhetorical question on Tuesday in the National Council: Do you want to use the legal framework to serve international platforms or protect medium-sized Swiss hotels? In the image of the supporters, it seems to be simply about the fight of the good guys against the bad guys – to help small, battered Swiss companies against big foreign rip-offs.
Nevertheless, the legislative project was controversial in the National Council. The Green Liberals (almost closed), about three quarters of the FDP parliamentary group and a good two thirds of the SVP parliamentary group spoke out against a change in the law; but this was not enough for a majority. Opponents of the change in the law emphasized that no special rule for an industry should be built into the general competition law. In this reading, it is up to the Competition Commission to ban harmful contractual clauses – which it can already do under current law. Booking.com had justified the criticized contract clauses with the fight against free riders: Otherwise, customers could select their favorite hotel on the booking platform, but then book directly on the hotel website at a lower price.
Competition law is not there to protect a specific industry, but to protect competition. Competition is not an end in itself, but a means to promote innovation, efficiency and low prices. Dealing with Internet mediation platforms is delicate for the authorities. Network effects in such markets encourage the formation of dominant platforms: Whoever has the greatest traffic and the most providers on their brokerage platform creates the greatest benefit and thus attracts an even wider audience. However, as market power grows, so does the danger of its abuse.
From a liberal point of view, caution would be advisable when dealing with such conflicting goals and in view of potentially rapid market changes: only intervene when there is clear evidence of harm. One ordered by the federal government Regulatory Impact Assessment of the Bern-based research office Ecoplan came to the conclusion in 2020, also with a view to foreign experiences, that the proposed legal intervention is unlikely to bring much benefit. Nevertheless, the legislative project also has good chances in the Council of States.
Target fees
Booking.com is not only in trouble with politics. Since 2017, the platform has also been involved in price monitoring proceedings. According to the law, the latter can order the reduction of market prices if the prices are abusive and not the result of effective competition. In 2015, ComCo found “strong indications” that Booking.com had a dominant position, as it limited the definition of the relevant market to online brokerage platforms.
The price watchdog made a proposal in 2017 that would require Booking.com to cut referral fees by a quarter to a third. In most cases, interventions by the price monitor result in an amicable settlement, according to the price monitor, but in this case there has been no agreement so far.
Price supervisor Stefan Meierhans spoke on Tuesday when asked about a “pilot procedure” and explained its length, among other things, with the complexity. In addition, the pandemic has also led to delays. According to Meierhans, “no reliable forecast can be made at the moment” about when the process will be completed.