Online travel agent merger will not reduce competition

In 2014, Expedia proposed to acquire Wotif, an online travel agent (OTA). The Australian Competition and Consumer Commission (ACCC) published a statement of issues in which it indicated that the proposed acquisition may cause commission rates charged to accommodation providers by Expedia to increase.

Greg Houston and Luke Wainscoat prepared a report that examined the principal bases on which competition amongst OTAs takes place, thereby informing an assessment as to whether the proposed acquisition would be likely to lessen competition.

Our analysis revealed two main findings that together suggested the proposed acquisition would not lessen competition. First, the online accommodation bookings sector is dynamic, and the extent of structural change over a few years suggested the proposed acquisition was unlikely to cause a substantial lessening of competition. For example, there had been very successful new entry by firms such as Booking.com, and metasearch services had grown quickly.

Second, the competitive constraints posed by other providers were strong because:

• the merging firms did not have very high market share and other competitors were growing fast;
• each provider offered a very similar service so the merging firms were not particularly close competitors, relative to other firms; and
• competing firms could expand quickly without substantial investment.

Ultimately, the ACCC did not oppose the proposed acquisition because:

• there had been significant new entry, including by Booking.com; and
• metasearch websites facilitate hotels’ ability to promote themselves alongside OTAs and transact directly with consumers.

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