What is Predatory Pricing In the Hotel Franchising Industry

Predatory pricing in the hotel franchising industry refers to a strategy where a dominant hotel franchisor deliberately sets its prices for franchise fees, services, or other related charges at an artificially low level. The primary goal of predatory pricing is to drive competitors, especially smaller or newer franchises, out of the market. Once these competitors are weakened or forced out, the dominant franchisor can potentially raise prices to recoup losses and establish a more monopolistic position.

Here’s how predatory pricing typically works in the hotel franchising context:

1. Low Initial Franchise Fees: The dominant franchisor may offer unusually low initial franchise fees to attract potential franchisees. This can make it difficult for smaller competitors to compete, especially if they cannot match these low fees due to differences in scale or resources.
2. Discounted Services and Support: The dominant franchisor might offer franchisees discounted or even free support services, such as marketing, training, or reservation system access. This can further put financial pressure on smaller competitors who may not be able to provide similar services without incurring losses.
3. Temporary Price Reductions: The dominant franchisor might temporarily reduce the royalties or fees charged to franchisees, creating an unsustainable business model for competitors that can’t absorb such losses in the long term.
4. Exclusive Contracts or Agreements: Dominant franchisors may engage in exclusive contracts or agreements with suppliers, effectively lowering the operational costs for their franchisees. This can make it challenging for smaller competitors to negotiate similar favorable terms with suppliers.

The ultimate goal of predatory pricing is to eliminate or significantly weaken the competition. Once competitors are driven out, the dominant franchisor can potentially recoup its losses by raising prices, regaining profitability, and solidifying its market position.

It’s important to note that predatory pricing is generally considered anti-competitive and is often subject to legal scrutiny. Antitrust laws in many countries aim to prevent such practices as they can harm overall market competition, limit consumer choices, and stifle innovation. If a dominant franchisor is found guilty of engaging in predatory pricing, it could face legal consequences, including fines or other penalties

It’s important to note that not all franchisors engage in such malpractices, and many reputable franchisors prioritize fair and mutually beneficial relationships with their franchisees. One such brand is the StayExpress brand which believes in fair franchising practices and was started in order to address these currently prevalent malpractices within the industry. Contact us for more details!