Booking.com exemplifies how competition policy in the transport and travel sectors is becoming increasingly intertwined with digital regulation

The prohibition of Booking/eTraveli

At the end of September 2023, the European Commission (EC) decided to block the acquisition of eTraveli, an airline online travel agency (OTA), by Booking, the largest European hotel OTA. Based on its press release, the EC’s concerns were driven by three market characteristics:

• Flight and hotel OTAs are complementary: consumers typically book hotels and flights at the same time.
• Many consumers are inert: they tend to make purchases on the same platform rather than shopping around.
• OTAs exhibit strong indirect network effects: listing more hotels makes platforms more attractive to travellers, which in turn makes them even more attractive to hotels, triggering a virtuous circle.

Based on these considerations, the EC concluded that Booking’s acquisition of eTraveli would have “expanded Booking’s travel services ecosystem”, "reinforced network effects” and “increased barriers to entry and expansion” in the hotel OTA market. This would have “strengthened Booking’s dominant position” and could have “resulted in higher costs for hotels and possibly consumers”. Ultimately, the acquisition would make Booking’s incumbency as a hotel OTA less contestable.

In simple terms, the possibility of booking a hotel room on the same website on which you are looking for a flight was expected to make you less likely to reserve that room somewhere else. According to the EC, Booking could take advantage of this “ecosystem effect” and increase prices without losing many customers.

In an attempt to address these concerns, Booking offered to present customers who buy an airline ticket with a choice screen: a subsequent window showing a range of hotels offered by different hotel OTAs ranked on price by Booking’s own KAYAK metasearch service algorithm. This screen could have eliminated the ecosystem effect described above, making customers more likely to book a room on a website different from Booking.

However, Booking’s rivals and the EC considered this remedy too obscure (the algorithm responsible for showing alternative hotels was described as a black box) and difficult to monitor. According to the EC, the selection and ranking of hotels shown via KAYAK would not be “sufficiently transparent and non-discriminatory”. In addition, rival hotel OTAs would only be presented to customers following their flight purchase, whereas Booking has opportunities to cross-sell to its own hotel OTA at various points while the customer is researching and booking a flight.

Innovative theories of harm

In this context, the Commission developed a new and untested theory of harm in an established industry. There is no horizontal overlap and no partial foreclosure (even though one could conceptualise this ecosystem theory of harm with such a framework). The only thing that changes in the post-merger world is that Booking has one more “jewel in its crown”, which may lead consumers to choose its platform instead of rival OTAs. Therefore the acquisition of eTraveli may entrench Booking’s incumbency as a hotel OTA.
From an economic perspective, three concepts appear particularly interesting in this theory of harm:

• First, the EC focused almost exclusively on dynamic competition. It did not dwell on how the markets would look today if the two parties merged. Instead, it tried to understand and predict how complex digital markets might evolve in the next decade and what role the merged entity would play in determining the shape and characteristics of these markets. This is an increasingly common feature in the assessment of mergers with a digital aspect.
• Second, the EC built the vast majority of its case on the idea of market power leveraging in the context of interconnected product markets, i.e. ecosystems. In particular, it regarded the acquisition of eTraveli as concerning because it could facilitate a leveraging of market power from flight OTAs to Booking’s core market as a hotel OTA.
• Third, the theory of harm developed by the EC was that Booking’s acquisition of eTraveli constituted a defensive merger strategy, meaning that the EC’s concern lies in the idea that Booking could further entrench its market power as a hotel OTA (i.e. its “core” business) following the deal for the reasons listed above. In contrast, the thinking in other large digital transactions (e.g. Meta/Kustomer and Microsoft/Activision) has been that the deals constituted an offensive strategy because they sought, by leveraging the target firm, to tip a nascent market in the acquirer’s favour.

These features will likely make Booking’s (pending) appeal of the prohibition particularly relevant to determining the ability of the EC and national competition authorities to defend similar theories of harm in future merger assessments.

Behavioural and access remedies

In Booking/eTraveli a full divestment was not possible, sensible or feasible. Booking therefore offered the EC a non-access, behavioural remedy: a choice screen from which customers could select hotels offered by Booking’s rivals after having bought an airline ticket on the same platform.

There has been a growing debate about the efficacy of non-structural remedies in addressing competition authorities’ concerns, especially in the case of digital mergers (for example, see the CMA’s decision on Meta/GIPHY in the UK).

Remedies in the modern merger control regime can be split into three types: structural, behavioural and access. In general, the EC appears to be more open to access remedies than the CMA has been in recent times, whereas behavioural remedies can often be contentious on both sides of the Channel.

In other recent merger cases such as Microsoft/Activision, Microsoft committed to give rival cloud gaming providers free access to Activision’s games to address the EC’s concerns. Only in the last instance did it sell the cloud gaming rights to Ubisoft in order to appease the CMA. While the CMA sought to portray its revised remedy as structural in nature, it can be better defined as a more significant access remedy, rather than a structural remedy involving the permanent divestment of assets. In this context, the EC (and to a certain extent the CMA) ended up accepting Microsoft’s proposed access remedy because the competition concern was very specific and the remedy was appropriately targeted.

On the other hand, the competition concerns raised in the Booking/eTraveli case were much wider and less specific. As a result, it was very difficult for the parties to convince the EC that a non-access, behavioural remedy could have been effective against such a generic theory of harm.

The new frontier of competition policy in the industry

In March 2024, Booking notified its potential gatekeeper status to the EC under the Digital Markets Act. Back in May 2023, Booking had stated that it did not meet the threshold to be designated as a gatekeeper, unlike Alphabet, Amazon, Apple, ByteDance, Meta and Microsoft. However, the situation has changed and Booking seems to have passed the threshold, with annual turnover in the EU above €7.5bn, 45m final users in the EU and more than 10k business users over the last three years.

This is the first DMA notification of a European company and is particularly interesting for two reasons.

First, it further highlights how competition enforcement in the transport and travel sectors is becoming increasingly intertwined with digital regulation. This will be relevant not only for large platforms like Booking but also for their competitors and business users, which stand to benefit from the increased fairness and contestability that the DMA has been designed to foster. They could also potentially initiate litigation against gatekeepers if they think their behaviour flouts their obligations under the DMA.

Second, the DMA can be seen as a double-edged sword. In particular, from the perspective of platforms operating in the transport and travel sectors, the DMA represents:

• an opportunity to defend themselves against Big Tech platforms (e.g., Article 6.5 protects Booking from Google’s practices in the search market and Article 6.4 from the market power of Google Play and Apple’s AppStore); but also
• a limitation of their own ability to operate in the market, with the following DMA obligations appearing most relevant in this context:
  • Most favoured nation clauses – Art. 5(3) "The gatekeeper shall not prevent business users from offering the same products or services to end users through third-party online intermediation services or through their own direct online sales channel at prices or conditions that are different from those offered through the online intermediation services of the gatekeeper."
  • Self-preferencing & FRAND – Art. 6(5) "The gatekeeper shall not treat more favourably, in ranking and related indexing and crawling, services and products offered by the gatekeeper itself than similar services or products of a third party. The gatekeeper shall apply transparent, fair and non-discriminatory conditions to such ranking."
  • Data sharing – Art. 6(10) "A gatekeeper has to provide (third parties authorized by) business users with free of charge, effective, continuous and real-time access to data provided or generated by business users (or their end users) in using the gatekeeper’s CPSs or services offered with or in support of a CPS. For personal data, end users have to provide consent.”

Conclusion

Digitisation has transformed travel and transport. For many of us, exploring flight and hotel options on the internet or in specialised apps is an unavoidable first step in booking a trip. This means that traditional competition policy is bleeding into digital regulation and breaking new ground in the process: in rejecting Booking’s proposed acquisition of eTraveli, the EC has developed an untested theory of harm in an established industry.

The outcome of Booking’s pending appeal against the prohibition is uncertain, but one thing is clear: competition authorities will need to keep updating their regulatory toolkit to keep pace with the rapid evolution of digital markets – in travel, in transport and myriad other sectors.