According to a recent article in the Wall Street Journal, Travelocity.com LP announced that "travelers who book hotels on its web site, and then later find the same reservation at a lower price online anytime before the day of check-in, will be refunded the difference between the prices." Travelers who are able to find a lower price after making his or her reservation would be required to send a screen grab or other types of proof to Travelocity to be awarded the refund. What Travelocity.com has offered is commonplace in the online hospitality sales industry and is similar to the "best rate guarantees" that other travel agents offer. For example, customers of Expedia Inc will be refunded the difference and awarded a travel coupon worth $50 if they find a better price online for the same trip within 24 hours. Hotels.com, on the other hand, will match the lower price "right up to the time of the property's cancellation deadline, whether that is three days after [its customers] make the booking or three months."
These price matching tactics, while seemingly competitive in nature, actually allows for tacit collusion or competition reduction to take place between the firms. The price matching offer, or "best rate guarantees," effectively takes away the benefit any of its competitors might gain from cutting its price. Having been offered the guarantee of a best possible price in the market, a prospective customer is more likely to make her reservation from the agent knowing that in the event she finds a lower price elsewhere, she's insured to be able to get the lower price. Since price matching removes any benefit from price cutting, firms are less willing to cut price and price competition is effectively reduced.
- Iwan Kurniawan, Curtis Anthony Roddy, and David Smola
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