If a “neutrality rule” was imposed, hotels should charge the same room prices for intermediaries and customers. Hence, hotel chains would not be able to apply special offers, discounts or promotions on lodging prices; and tour operators would be less encouraged to offer appealing holiday packages or include additional services.
Hotels would have then fewer tools to efficiently manage occupancy, increasing their operational risks. Consequently, hotels would require higher investment returns in order to compensate that risk. They would necessarily raise their prices. Thus, customers would have less accessibility to hotel services, leading to a foreclosure of the market for some customers.
These are the main findings of the new report elaborated by Solchaga Recio & Associates on how Net Neutrality provisions could impact on different sectors. (Spanish version of the report)
In detail, this new report states that the imposition of a “neutrality rule” would restrict the majority of hotels’ commercial strategies, as “When neutrality occurs, all market participants should be treated equally in terms of prices, preferences, quality, quantity or priority”.
Moreover, a “Neutrality rule” would imply that hotels could not distinguish among customers’ profiles and similar rooms should have the same price and conditions. Thus, these regulatory restrains could harm competition and lead to equal prices whatever the sales channel is used for booking, either direct sale or indirect sale through intermediaries.
From the hotel side, the room for offering users different prices could be seriously restricted. As the report shows, it could also be interpreted that hotels have to apply the same conditions to different intermediaries, regardless of their retail power. A direct consequence of this is that the strategies focused on ensuring occupancy would be impossible to implement. At the same time, Tour operators as intermediaries would lose their main competitive advantage and customers would also lose the advantages they could benefit from offers or innovations.
All in all, hotels’ operational risks would increase, and hotels would require higher investment returns in order to compensate that risk. Hotels would necessarily raise their prices. Hence, customers will have less accessibility to hotel services, leading to a foreclosure of the market for some custom.
To see the whole series of the publication on how Net neutrality rules would impact other sectors, you can check the following: airlines industry, supermarket sector, courier business, electronic payment systems, targeting acquiring businesses.