Chapter § 2.11 ANTITRUST CONSIDERATIONS

• Jurisdiction: United States
• Publication year: 2021

§ 2.11 Antitrust Considerations

Since the enactment of the Sherman Act of 1890⁹⁶⁷ the Congress of the United States has consistently demonstrated a commitment to relatively free competition in commercial matters.⁹⁶⁸ Congress has also demonstrated a commitment to protect certain industries from the rigors of competition on the grounds that some national purpose would be served. As a consequence, federal regulatory agencies were created to monitor and administer the activities of selected industries. The Federal Aviation Administration and the Civil Aeronautics Board were given the responsibility of regulating the activities of the airline industry, although most of those responsibilities have since been transferred to the Department of Transportation. All aspects of airline operation were vigorously supervised to include market entry, pricing, safety, liability and consumer protection. Airlines were in fact, monopolists or oligopolists, encouraged to operate as such by federal regulatory agencies. Needless to say, there was conflict between the antitrust laws and the regulatory scheme protecting airlines.⁹⁶⁹

The effect of primary jurisdiction was that air carriers and related entities were almost totally relieved from the operations of the antitrust laws. The Federal Aviation Act provided for the antitrust exemption.⁹⁷⁰ As a consequence of the doctrine of primary jurisdiction coupled with antitrust immunity afforded by the Civil Aeronautics Board, many antitrust actions brought by competitors, travel agencies and tour operators⁹⁷¹ and consumers⁹⁷² were dismissed or stayed by the courts.

Pursuant to the Airline Deregulation Act of 1978, many aspects of airline regulation ceased and immunity from the antitrust laws revoked,⁹⁷³ meaning that the issue of primary jurisdiction is no longer a consideration. In essence, antitrust litigation against air carriers and related entities is feasible.

[1] The Parties

There are many marketing levels involved in the sale of air transportation. First, there are the airlines that are in the business of selling seats on aircraft. Airlines sell directly to the public through ticket offices at airports and over the Internet. Second, airlines have formed trade associations both domestic, Air Transport Association (ATC) and international, International Air Transport Association (IATA). In the past these trade associations agreed to divide markets, fix prices, limit liability and commit acts that potentially violate the antitrust laws. ATC and IATA have in the past controlled the sale of air transportation through retail travel agents, wholesalers and tour operators. The activities of these trade associations has been regulated and are still monitored by the D.O.T. Third, air transportation is marketed through retail travel agents⁹⁷⁴ and Internet travel sellers⁹⁷⁵ to the general public. Fourth, wholesalers, tour operators⁹⁷⁶ and hotels⁹⁷⁷ enter into a variety of agreements with air carriers wherein air transportation is provided as part of a package tour.

All of these actors may be involved in the sale and purchase of air transportation.⁹⁷⁸ In such a system, it is inevitable that airlines may use their substantial market power to bring pressure to bear on perceived and real competitors. It is also obvious that agreements that involve fixing prices, sharing markets and limiting liability may have an adverse impact on the consumers of air transportation and the U.S. government.⁹⁷⁹ In addition, mergers of airlines may raise concerns over a perceived or real reduction in competition.⁹⁸⁰ Recently, the DOT and Justice Department have commenced investigation of possible price fixing.⁹⁸¹ and price gouging⁹⁸² by domestic airlines.

[2] Consumers

It is clear that airlines through their trade associations, ATC and IATA, may act in concert in creating and adhering to uniform policies vis-a-vis consumers of air transportation.

Since the enactment of the Airline Deregulation Act of 1978, airlines have competed more vigorously in terms of the prices charged for air transportation.⁹⁸³ Prior to deregulation airlines acted as monopolists or oligopolists for thirty years or more. After an initial flurry of competition, airlines may again fix prices and divide markets in response to which consumers may seek damages.⁹⁸⁴

[3] Competitors, Tour Operators and Travel Agents

Antitrust litigation involving competitors, tour operators, travel agents and others arises in a variety of circumstances.⁹⁸⁵

[4] Travel Industr y Antitrust Cases

[a] Hotels and Tour Operators: "Best Price" and "Lowest Price" Guarantees

In Online Travel Company Hotel Booking Antitrust Litigation⁹⁸⁶ plaintiff consumers set forth "three antitrust claims which charge Defendants (hotel chains and OTAs) with engaging in an industry-wide conspiracy to uniformly adopt resale price maintenance agreements, containing most favored nation clauses, in an effort to eliminate price competition among hotel room booking websites." In addition "the Complaint (set forth a consumer protection law claim) which alleges that Defendants deceptively published 'best price' or 'lowest price' guarantees on their website while knowing that 'best' price was the same fixed rate offered across all hotel booking websites."

[i] The Relevant Market: Online Booking

"The relevant conduct at issue . . . took place in the U.S. market for 'direct online sale of hotel room reservations.' . . . Hotels have long sold rooms to consumers through various channels of distribution, including 'telephone or walk up reservations.' With the rise of the internet, an important new channel presented itself: the online booking market. In this market, a hotel can offer a single room to consumers through multiple online outlets, including its own website or any of the websites operated by OTAs (which) have 'seen explosive growth' . . . attributable to the value OTAs offer consumers; they 'allow consumers to rent hotel rooms in many different hotels throughout the country and the world' and 'easily search many different hotel types and locations in their desired areas' and 'many . . . have reviews provided by consumers with which to evaluate different properties.'"

[ii] Rate Parity

The Defendants include "twelve 'collectively . . . dominant hotel chains in the United States' [Hotel Defendants] . . . [and] . . . nine OTAs [OTA Defendants], four of which—Expedia, Orbitz, Priceline and Travelocity—'accounted for 94% of' all OTA- hotel bookings in 2011. . . . Collectively, Defendants are charged with entering into an industry-wide conspiracy to impose 'rate parity' across hotel room booking websites. Put differently, Defendants allegedly conspired to eliminate, on an industrywide basis, intra-brand competition—that is, competition among each hotel's online distribution channels, including its own website and OTA-run websites. Here are just two examples set out in the Complaint illustrating the rate parity Defendants' conspiracy allegedly created: Dallas Marriott, 1 King Bed or 2 Double Beds, June 1-2, 2013 (posted 4/25/13): Expedia $159, Hotels.com $159, Orbitz $159, Priceline $159, Travelocity $159, Booking.com $159, Marriott's website $159. Hilton Dallas/Park Cities, 1 King Bed, June 1-2, 2013 (posted 4/25/13): Expedia $139, Hotels.com $139, Orbitz $139, Priceline $139, Booking.com $139, Hilton's website $139."

[iii] The RPM Agreements

At the heart of the alleged conspiracy were written contracts "known as resale price maintenance ('RPM') agreements [between the Hotel Defendants and] each OTA Defendant [which] 'provided at least two restrictive terms.' The first term mandated that the hotel 'would establish' and publish 'the Best Available Rate' or "Lowest Rate' for a non-packaged room . . . [and] [t]hat published rate was the price the [OTA] could use when selling rooms to consumers.' The second relevant term—known as the most favored nation ('MFN') clause—'provided that the published rates offered by the [OTA] would be as favorable as the published rate offered to (a) any [OTA] competitor and (b) the rates published on the internet site operated by the hotel itself. . . .'

"Thus, each RPM agreement ensured first, that each OTA would not discount below each hotel website's published rate, and second, that each hotel was providing each OTA with its lowest online rate."

[iv] The Illusory "Best Price" Guarantees

"With the 'RPM scheme' ensuring rate parity remained in tact, the OTA Defendants began to 'offer a near identical 'best price' guarantee—knowing that it is the only price available even among competitors.' A couple of examples include Travelocity's advertisement guaranteeing the 'Best Price: If you find a lower rate, we'll pay the difference and send you $50' and Orbitz's 'Low Price Guarantee: If you book a qualifying prepaid hotel rate on the Orbitz Web site, and then find the same room, in the same hotel, for the same dates, at a lower price online . . . we'll refund the difference and give a $50 discount on future hotel booking.' The Hotel Defendants made 'similar promises,' for example, Marriott's 'Best Rate Guarantee: Book a Marriott room using any Marriott reservation channel,' online or otherwise, and '[i]f within 24 hours of making your reservation, you find a lower hotel rate for the same hotel, room type and reservation dates . . . we'll match the rate + give you an extra 25% discount of the room.'"

[v] Parallel Business Be hav ior

In dismissing the antitrust claims the Court held that "the real 'nub' of the Complaint in this case is Defendants' parallel business behavior-the adoption of similar RPM agreements seen across pairs of OTA and Hotel Defendants (and) Defendants' adoption of similar business strategies is not suspicious or suggestive of an agreement. . . . More, generally, hotels across the industry may find that controlling minimum resale prices is the 'only feasible' way to effectuate a profitable price discrimination strategy- that is, a strategy to 'sell the same...