Price discrimination in the travel industry
Individualised pricing is old news in this industry – most travellers are used to seeing prices for the same plane ticket go up as the date of the flight approaches, or cheap last-minute offerings for hotel rooms.
With technology changing how customers purchase travel services, new means of identifying and segregating customers to charge different prices have emerged. Discrimination in prices offered to users who are logged into an account and users who do not set one up, or users booking on a mobile platform instead of a desktop, are also now commonplace.
In economic terms, this phenomenon emerges because different groups of consumers (or even the same consumers at different points in time) are willing to spend more or less, depending on their circumstances. By recognising these patterns and offering different prices to different groups of consumers, firms can increase their profits.
Is price discrimination fair?
Although many forms of price discrimination (such as student discounts or “happy hour” at a bar) are considered fairly benign and generally tolerated, the practice can often be unfair when it exploits asymmetries of information between buyers and sellers. This is the case with digital platforms such as Trivago and Skyscanner that have harvested and analysed large volumes of consumer data to adjust prices offered to users. This practice becomes far more questionable when our results indicate that consumers in less developed countries are more affected than those in developed countries.
Most notably, price discrimination based on nationality or country of residence is illegal within the EU. Differences in cross-country pricing in the sale of goods without physical delivery, electronically supplied services or services provided in a specific location (hotel bookings, car hires, tickets) are explicitly prohibited by European law.
Fideres’s research shows that price discrimination for these services based on consumer location nevertheless exists, with some services charging more than double depending on the country of access.
To conduct our investigation, Fideres turned to travel websites that offer flight and hotel bookings across the globe. We obtained prices charged for flight tickets and hotel bookings for flights between London and selected cities around the world. We then analysed the difference between the prices charged for the same service when contemporaneously booked from different locations around the world. We obtained these prices from different booking locations by accessing websites from different countries simultaneously.
§ We analysed flight prices for travel on 24 December 2019 from London Heathrow to different destinations around the world from Skyscanner, an online flight ticket booking platform
§ We also obtained hotel prices for accommodation between 24 December 2019 to 01 January 2020 from Trivago, an online price comparison platform for travel accommodation
§ We matched the exact flight details and hotel booking details from these different locations to identify prices charged for the same services in a variety of countries
§ To ensure that price differences were not caused by changes in availability of flights and hotels, we ran the searches in parallel and within a short time frame of ten minutes
The map below shows the minimum and maximum prices for flights and hotels for major travel destinations.
Source: Skyscanner, Trivago (Search date: 27 November 2019)
Flight price differences
§ Flight prices show a difference of more than 150%, depending on consumers' location in some cases
§ A consumer in South Africa, for example, while booking a flight from London to Dubai, could have saved up to $1,203 (savings of more than 61%) if they booked the flight from UK
§ We also found price differences for the same flights when booked from different countries within the EU. For example, we observed a price difference of €173 for a London-Toronto flight when booking it in Germany compared to France
Hotel price differences
§ Hotel booking prices also show significant differences, more than 50% in some cases, depending on the location they are booked from
§ We observed much larger price differences, up to 96%, when booking the same hotel accommodations from different countries within the EU
Fideres’s research shows that travel service price discrimination based on the country from which these services are accessed exists. Depending on the location of access, the price can be more than twice as much.
With digital platforms enabling information asymmetries, less sophisticated consumers suffer most harm due to these practices. This phenomenon exists even within the EU, where laws are designed to prevent such price discrimination.
Fideres’s ongoing research into antitrust issues and digital platforms suggests that this is yet another case where digital platforms tip market dynamics against consumers, causing significant harm.
Further investigations are required to establish who is ultimately responsible for this conduct: is it the digital platforms, the travel companies, or both?