Antitrust Lawyer Blog
On September 16, 2015, the Department of Justice’s Antitrust Division (“DOJ” or “Antitrust Division”) issued a statement regarding it decision to close its six month investigation of Expedia’s $1.3 billion acquisition of Orbitz. The decision means that Expedia can close its acquisition of Orbitz to combine two of only three online travel agencies (“OTAs”) in the United States.
Second Request
The transaction was announced on February 12, 2015 and the Antitrust Division issued a second request on March 25, 2015. The transaction drew antitrust scrutiny because it came on the heels of Expedia’s acquisition of Travelocity in a deal that was cleared via early termination of the Hart-Scott-Rodino (“HSR”) waiting period on January 14, 2015. That transaction reduced the number of sizable OTAs in the United States from the four-to-three, and consolidated 56% of the market in the hands of the enlarged Expedia. The DOJ scrutinized the Expedia/Orbitz deal because the transaction presented a three-to-two situation, in which the combined Expedia/Orbitz would possess a commanding 75% of the OTA space in the United States, leaving just Priceline as a sizable alternative with roughly 19% share of the space.
Politicians, Consumer Watchdog, the American Hotel & Lodging Association, and hotels raised concerns about the combination noting that it would create a duopoly and lead to higher prices. The parties maintained, however, that the market was competitive. Indeed, OTAs compete in a $1.3 trillion global travel market, which is fiercely competitive as evidenced by the sheer number of ways in which people book travel and hotels/airlines/car rental firms attract bookings. OTAs compete with a host of regional and global online and offline travel agencies, meta-search sites such as TripAdvisor and Google Hotel Finder, search sites like Google and Bing, and the travel suppliers themselves, who aggressively seek to induce consumers to book directly with them via customer rewards.
DOJ’s Findings:
In closing the investigation, Assistant Attorney General Bill Baer stated that online travel booking is important to U.S. customers and to the airlines, car rental companies and hotels that serve those consumers. He explained that the DOJ conducted a thorough investigation and despite concerns from third parties that the DOJ concluded that the acquisition is unlikely to harm competition and consumers. He noted three reasons for this conclusion.
First, the Antitrust Division did not find any evidence that the merger is likely to result in new charges being imposed directly on consumers.
Second, while it focused on the commissions Expedia and Orbitz negotiate with airlines, car rental companies and hotels, the Antitrust Division found that Orbitz is only a small source of bookings for most of these companies and thus has had no impact in recent years on the commissions Expedia charges. Indeed some independent hotel operators do not contract with Orbitz and larger hotel chains have alternative ways to attract customers and obtain bookings, including Priceline.
Third, the evidence suggests that the OTA business is rapidly evolving. In the past 18 months, for example, the industry has seen the introduction of TripAdvisor’s Instant Booking service and Google’s Hotel and Flight Finder with related booking functionality.
Accordingly, Expedia’s acquisition of Orbitz is not likely to substantially lessen competition or harm U.S. consumers.
Lessons Learned:
First, when reviewing a transaction, the DOJ considers the unique characteristics of each relevant market. It focuses on market realities and competition. Indeed, when all channels for booking travel are taken into account, OTAs generate just 16% of total U.S. gross bookings. When determining whether a combination of OTAs substantially lessens competition in a relevant market, the DOJ examined a broader market of intermediaries that book travel, and all of the ways that travelers can discover and book travel to determine that no there was no concern for U.S. customers. Therefore, it focused on concerns raised by the hotel industry. Second, third party complaints must include a credible antitrust theory. Here, the DOJ was clear that although it acknowledged that certain third parties have concerns about the combination those concerns did not amount to anticompetitive harm. When analyzing the dynamics and overlying factors within the OTA industry, it is clear that Expedia and Orbitz are subject to competitive constraints not apparent from a simplistic review of market shares. Third, when there is evidence of recent entry or evidence that suggests that powerful competitors can readily enter the market, a merger between two of three large industry players will not substantially lessen competition. Indeed, horizontal mergers that result in a duopoly are not anticompetitive if entry will deter or counteract the adverse market impact. Given these market dynamics, Expedia/Orbitz is not a typical three-to-two merger.
Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com