Anti-Trust Issues - What Keeps Your Lawyer Up at Night

By William A. Brewer III Managing Partner, Bickel & Brewer | January 14, 2010

Consolidation has been a growth strategy of the lodging industry for more than a decade and a half, and some analysts predict that mergers and acquisitions (M&A) will continue to make economic sense to industry executives for the foreseeable future. The question is: will continued consolidation make sense to the trustbusters, competitors or even business partners who may harbor an antitrust gripe?

The wave of M&A activity, fueled by record hotel profits, globalization and an influx of private equity money, is increasing the market power of the big industry players. Hotel giants have been accumulating multiple brands - either in multiple market sectors or in a single sector - and that trend is expected to continue. As a result, fewer competitors hold larger market shares with more control over the nature of competition in various market segments.

These industry trends can draw unwelcome attention from more than just the trustbusters. Competitors and business partners alike have significant incentives to engage in private antitrust litigation, and this only adds to the antitrust concerns that keep your lawyer up at night.

The Effect of Market Concentration

Federal antitrust enforcers are likely to view a merger or acquisition as creating or enhancing market power (or facilitating the exercise of such power) if the merger or acquisition significantly increases market concentration and results in a concentrated market. The federal Horizontal Merger Guidelines treat market concentration as a measure of the likely anticompetitive consequences of mergers and acquisitions. The Federal Trade Commission ("FTC") and the Department of Justice employ the Herfindahl-Hirschman Index ("HHI") to gauge the concentrating effect of M&A activity. The HHI is calculated by summing the squares of the individual market shares of all market participants, and the difference between the pre-merger HHI and post-merger HHI suggests the merger's likely effect on market concentration. An HHI level below 1000 creates a presumption that the market is un-concentrated, which is considered competitive. HHI levels between 1000 and 1800 indicate moderately concentrated markets, which may or may not raise competitive concerns. Markets with HHI levels over 1800 are highly concentrated and are more likely to pose competitive concerns.

Private Antitrust Litigation

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Social Media: Getting Personal

There Social media platforms have revolutionized the hotel industry. Popular sites such as Facebook, Twitter, Pinterest, Instagram, Snapchat, YouTube and Tumblr now account for 2.3 billion active users, and this phenomenon has forever transformed how businesses interact with consumers. Given that social media allows for two-way communication between businesses and consumers, the emphasis of any marketing strategy must be to positively and personally engage the customer, and there are innumerable ways to accomplish that goal. One popular strategy is to encourage hotel guests to create their own personal content - typically videos and photos -which can be shared via their personal social media networks, reaching a sizeable audience. In addition, geo-locational tags and brand hashtags can be embedded in such posts which allow them to be found via metadata searches, substantially enlarging their scope. Influencer marketing is another prevalent social media strategy. Some hotels are paying popular social media stars and bloggers to endorse their brand on social media platforms. These kinds of endorsements generally elicit a strong response because the influencers are perceived as being trustworthy by their followers, and because an influencer's followers are likely to share similar psychographic and demographic traits. Travel review sites have also become vitally important in reputation management. Travelers consistently use social media to express pleasure or frustration about their guest experiences, so it is essential that every review be attended to personally. Assuming the responsibility to address and correct customer service concerns quickly is a way to mitigate complaints and to build brand loyalty. Plus, whether reviews are favorable or unfavorable, they are a vital source of information to managers about a hotel's operational performance.  The February Hotel Business Review will document what some hotels are doing to effectively incorporate social media strategies into their businesses.