This week, our group presented on Priceline.com regarding the company’s decision to report revenues as gross and net on its financial statements.   We came to the conclusion that Priceline should continue to report a mix of gross and net, as it has done since inception, as long as it can justify the decisions through the indicators on FASB’s EITF 99-19.  One of the major reasons Priceline and other tech companies reported earnings as gross during their early years was because they wanted potential investors to see the value of their customer base.  Once Priceline reaches sufficient economies of scale in the long term, this becomes less relevant.

Presently, Priceline.com is one of the most expansive companies in the online booking industry.  After its acquisition of the European Booking.com in 2005, its market share and profits increased significantly.  Priceline’s stock price recently hit record highs of over $1,000 per share.  It has been flexing its economic muscle in the past few years and has been catching some flak over a few questionable business tactics.  One practice, common to the big players in the online booking industry, which has been causing a backlash from some hotels and government agencies in Europe recently, is rate parity.  Financial Times has written two articles in the past two months regarding investigations by both the French and British government’s inquiries into this and other anti-competitive practices.

Rate Parity is commonly written into contracts between the online agencies and hotels.  It dictates that hotels only offer their lowest rates on the particular agencies’ portals.  While being listed on the online agency websites such as Priceline and Expedia is vital to the survival of most hotels, signing a contract with rate parity limits the hoteliers ability to give the best price to customers it finds on its own accord.  This catch 22 has caused several French hoteliers to submit a complaint to France’s antitrust regulation agency.  Their goal is not to part from the online booking companies, just to have some negotiating power on their pricing abilities.

The UK’s Office of Fair Trading investigated Priceline and Expedia after a smaller online booking company, Skoosh.com, claimed that their rate parity contract clauses were causing hotels to make Skoosh list higher prices or remove them completely from their website.  Skoosh claimed it lost 30 percent of its hotels in the past few years.  In 2012, the Office of Fair Trading ruled that they had broken the competition law.  Priceline and Expedia agreed to make concessions on the rate parity constrictions, but did not admit to any wrongdoing.

Article

http://online.wsj.com/article/SB10001424127887323342404579079402009561162.html

http://www.ft.com/intl/cms/s/0/a79e9384-00c1-11e3-8918-00144feab7de.html