Glossary

Rate Parity

Also known as: Price Parity

A hotel's practice, and historically a common contractual requirement, of offering the same room rate for a given room type and date across all distribution channels — the hotel's own website, the brand's central reservation system, and third-party online travel agencies — so no channel can consistently undercut another on price.

Rate parity was traditionally enforced through most-favored-nation clauses in online-travel-agency distribution contracts, requiring the hotel to guarantee an OTA's listed rate would never be undercut by the hotel's own direct-booking rate, but antitrust scrutiny in the United States and the European Union has led several major OTAs to relax or narrow strict parity requirements, giving hotels more room to price direct bookings below OTA-listed rates as an incentive to shift share toward lower-commission channels. Rate parity, or its erosion, directly affects a hotel's revenue-management and distribution-cost strategy, since OTA commissions, commonly 15% to 25% of the booked rate, make direct bookings materially more profitable per room-night even at an identical or discounted rate — so franchisors' loyalty-program rate discounts and direct-booking incentives are, in large part, a structural response to the economics that rate-parity erosion has created.