The Korea Fair Trade Commission (KFTC) has recently confirmed that contracts between global online travel agencies (OTAs) and hotels in South Korea included clauses guaranteeing minimum prices. The KFTC’s restrictions on the OTAs are likely to accelerate.
The KFTC looked into approximately 10 hotels to confirm whether the OTAs such as Booking.com, Agoda and Expedia affected the business of the hotels by using their dominant market position. The commission confirmed that their contracts included most favored nation (MFN) clauses.
In the online travel industry, an MFN clause is regarded as a clause guaranteeing a minimum price, In other words, the global OTAs prevented the hotels from offering their rooms at lower prices via the other OTAs or the hotels’ official websites.
Those global OTAs have emerged with the tourism and accommodation industry going online and mobile. Armed with huge capital and data, those platforms are selling airline tickets and hotel services at the same time to take market shares from South Korean travel agencies. According to the Korea Culture & Tourism Institute, the global OTAs accounted for 53.7 percent of local lodging reservations in 2017, when the market share of their local competitors stood at 6.7 percent.
The global OTAs’ refutation has reasonable grounds though. In most cases, hotels pay certain commissions in providing their rooms for OTA platforms. Without the minimum price clause, hotels can offer their rooms at lower prices via their websites. Then, more and more consumers will prefer reservation via the websites to OTA-based reservation. It is in this regard that OTAs are advocating the necessity of the clause as a tool for preventing hotels’ free ride.
The KFTC’s hesitation concerning the degree of restrictions is because of this point. Its measures intended to promote competition could lead to an excessive law enforcement adversely affecting the fledgling industry. The commission is planning to reach a conclusion on the degree of restrictions in the first half of next year after checking the OTAs’ local branches next month.