Hotels to OTAs: “Hands off my rates!” The economic consequences of the rate parity legislative actions in Europe and the US

Abstract

The objective of this research is to analyze the impact of the legislative actions regarding rate parity agreements on the market value of hotels and online travel agents in Europe and the USA. Rate parity clauses (uniform hotel room pricing across channels), have been solved differently depending on the countries: while several European countries have outlawed rate parity clauses, the legal status of rate parity has been reaffirmed by courts in the United States. However, whether rate parity is good for hotel and OTA performance is not completely understood. Drawing from Rochet and Tirole's (2003) theory of two-sided markets and using a market value based measure of performance, this study examines in a 2 × 2 framework the effects of the contrasting legislative outcomes in Europe and the United States on hotels and OTAs. The results show coherent outcomes in both continents: rate parity is beneficial to OTAs but not to hotels.