The recent decision of the Conseil de la Concurrence (the French competition regulator) fining six hotels for “collusion”/“market coordination” is well-known. The fines, which were imposed on some of the most luxurious, grand and opulent hotels of in Paris, ranged from EUR 55,000 to EUR 248,000.
This article recaps some key aspects of competition law that hoteliers must be aware of and outlines steps to take to avoid the scrutiny of the competition authorities.
Competition law and competition compliance
In an article published in Hotel Report in late 2004, we explained what competition law was about, highlighted the importance of complying with competition lawcomplying with competition law and, in particular, stressed the importance of the need for employee competition compliance training for employees. Competition compliance training tries to ensure that hoteliers do not act in an anti-competitive manner. Even if there is no anti-competitive intent, it training helps employees try to act in a manner which is not seen to be in any way anti-competitive – it can help and reduces the risks of misunderstandings arising about behaviour.
It is worth extracting here some points made iIn that article we stated:“Competition law prohibits anti-competitive agreements and abuses of dominant positions…
“Ascertaining the relevant market and an operator’s market share is crucial for many areas of competition law. A definition of the relevant market indicates which geographical and services market a hotelier operates in and the market share held by the hotelier. For example, a viable market may be the market for four-star hotels in the West End of London…
The hotel sector is characterised by strong brand competition and hoteliers regard the hotel sector as a tough competitive environment to do business in. However, cCompetition law is relevant even where parties do not have market strength across a whole sector. Regulators often focus on sub-markets where operators only have marginally strong market positions…
A statement like “price consistency is key to success” creates a dangerously wrong impression. Put simply, it looks like price-fixing…
The [UK] Office of Fair Trading has imposed significant fines in a wide variety of sectors with different profiles. It is now also critical for hotel operators to ensure that all aspects of their business comply with competition law. Failing to do so could incur a sizeable penalty...
Participation in trade associations, alliances or forums brings competitors into contact with one another. It is critical that employees are made aware that they are prohibited from exchanging commercially sensitive information at such meetings or entering into any unlawful agreements, whether intentional or not, with competitors…
Compliance training provides employees with a basic understanding of the laws governing market behaviour, and the obligations imposed by EU and UK competition legislation, making them aware of the type of agreements and practices which breach competition law. It can give employees a chance to learn about dealing with increasingly common dawn raids. It gives hoteliers some peace of mind.”
The French decision
The French regulator said it found evidence of regular sharing of detailed confidential information between the hotels through meetings and correspondence, on a weekly and monthly basis. It said that this created a “collusive market equilibrium”. It found and that the super-luxury end of the Paris hotel market constituted an economic market in itself.
Although the regulator made a finding of anti-competitive behaviour in the form of market coordination through information sharing, it cleared certain joint marketing efforts run by the hotels.
The regulator’s four-year investigation was sparked by “Capital”, a programme on French television.
This case shows how regulators target what they believe to be anti-competitive behaviour. Even where parties have not intended to act anti-competitively, there remains a possibility for misunderstandings (between regulators and commercial entities) occurring over certain types of behaviour. The case shows that sSome sectors are more likely than others to come under scrutiny, especially if the particular sector is y are under in the public’s eye or if the media are involved.
The case provides a timely opportunity to consider how businesses can try to ensure that exchanges of industry information comply with the competition rules.
Exchange of industry information
Benchmarking can be good for business, in creating a transparent, non-discriminatory environment in which employees may be encouraged to provide improved services. Benchmarking can therefore be pro-competitive. However, it is a fundamental principle of competition law that information exchanges may be anti-competitive, where some or all competitors on a market exchange sensitive/confidential commercial information and thereby acquire an unfair competitive advantage. Such an exchange may represent or facilitate anti-competitive activity – it can create an unfair disadvantage for competitors excluded from the exchange and may result ultimately in an unfair deal for customers and ultimately consumers.
In When participating in meetings with other hotels, hoteliers should at all times be aware of any activity which may represent a potential infringement of the competition rules. Specifically, where participants are sharing information which that clearly applies to individual, identifiable companies and is not general industry information, hoteliers should ensure that the information exchange relates strictly and exclusively to subjects on an agenda agreed beforehand.
Wherein representatives participating/participants in a meeting suspect or perceive any potentially anti-competitive activity they should:
- Immediately seek to terminate the activity in question
- Express their disagreement with the activity and, if it continues, with its continuation
- Seek if necessary to terminate the meeting
- Leave the meeting, if it continues despite all the above steps
- Keep a record of all steps taken
- Ensure that all their relevant managers and their company’s legal department are informed of all steps and receive a written record
In every case, a full record of all meetings should be kept, (even where there is no suspicion of anti-competitive activity).
It is not possible to give an absolute definitive list of exchanges which that constitute an anti-competitive activity and those that do not. However, certain types of information may involve a higher risk if anti-competitive activity. Criteria to assist in helping determine the level of risk of a competition law issue in information exchanges are set out below (these criteria are themselves not absolute).
- High risk of potential anti-competitive activity areas:
- Supply or exchange of information with direct or potential competitors
- Supply or exchange that consists of price/cost/investment/general business strategy/rebates, discounts/invoices/output/occupancy levels
- Confidential information – e.g. relating to product or services development or marketing strategy/customer information/supplier information
- Current information
- Individual company data
- Oligopolistic market structure
- One of a small range of large purchasers
- Product or service range is homogeneous
- Frequent exchanges
- Implied or explicit recommendations accompanying the exchange – e.g. when exchanging credit information
Written by Manish Bahl.
This is not an exhaustive review of recent developments and must not be relied upon as giving definitive advice. This article is intended to simplify and summarise the issues that it covers.
Published in Hotel Report
February 2006
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