A class-action lawsuit was filed against several online travel sites including Expedia, Inc. (Nasdaq:EXPE), Travelocity, Booking.com, a subsidiary of Priceline.com (Nasdaq:PCLN), and the nation’s largest hotel operators including Hilton Hotel, Sheraton Hotels and Resorts, a subsidiary of Starwood Hotels and Resorts Worldwide (NYSE:HOT), and Marriott International, Inc. (NYSE:MAR), claiming the two groups conspired to use their market dominance to fix prices on hotel rooms across the country.
The lawsuit was brought on behalf of hotel-room purchasers nationally and alleges that the online hotel retailers conspired with major hotel defendants to secretly create and enforce Resale Price Maintenance (RPM) agreements to thwart competition on hotel room prices, especially from price-cutting online retailers.
The complaint contends that the defendants’ unlawful conduct caused plaintiffs and other class members to overpay for their purchases of room reservations and seeks to represent all consumers who have purchased hotel rooms from the online retailer defendants.
According to the complaint, online travel sites account for as much as 50 percent of hotel bookings in the United States and traditionally operate under one of two models. Under the agency model, online retailers charge a service fee to a hotel operator on a transaction basis for booking customers, and that customer pays the hotel directly at a rate set by the hotel.
Under the merchant model, online retailers purchase rooms outright at a negotiated rate from the hotel, and then resell the rooms to consumers at a higher price, increasing or decreasing margins depending on competitive influences.
More recently, a new model has emerged that has cut into the traditional online retailers’ profits, the complaint contends, and has led to the creation of the RPM agreements. In this model, known as the Wholesale Model, third-party companies buy up unsold blocks of rooms at the last-minute and resell them to smaller price-cutting online retailers, eroding the profits of the traditional online retailers.
Knowing hotels cannot afford to lose access to online distribution networks, online retailers devised an illegal scheme, extracting agreements from the hotels that online retailers may not sell rooms below the RPM rates even through the wholesale model on penalty of termination and as a condition of doing business through the online retailers, the lawsuit contends.
The complaint states that the online retailer defendants often use terms like “best price guarantee” to create the impression of a competitive market, but in truth these are nothing more than a cover for the price-fixing conspiracy.
The suit alleges that the defendants’ activities violate both the federal antitrust laws, as well as California’s Cartwright Act.