EUROPEAN COMMISSION C(2016) 4097 final









To the notifying party: Dear Sir/Madam, Subject:Case M.7902 Marriott/Starwood

Commission decision pursuant to Article 6(1)(b) of Council Regulation No 139/2004 and Article 57 of the Agreement on the European Economic Area (1) 1THE PARTIES 2THE OPERATION 3EU DIMENSION 4MARKET DEFINITION 4.1Introduction 4.2Relevant product markets 4.2.1Hotel accommodation services 4.2.2Hotel management services 4.2.3Hotel franchising services

4.3Relevant geographic markets 4.3.1Hotel accommodation services 4.3.2Hotel management services 4.3.3Hotel franchising services 5COMPETITIVE ASSESSMENT 5.1Introduction 5.2The markets for hotel accommodation services 5.2.1Methodology for the estimation of market shares on markets for hotel accommodation services 5.2.2Introduction on affected markets 5.2.3Elements common to the assessment of markets for hotel accommodation services in the EEA 5.2.4Assessment at local level 5.3Hotel management services 5.3.1Methodology for estimating market shares 5.3.2Estimated market shares of the Parties and affected markets 5.3.3Effects of the Transaction on ongoing management agreements 5.3.4Effects of the Transaction on new management agreements 5.3.5Conclusion 5.4Hotel franchising services 5.4.1Estimated market shares of the Parties and affected market 5.4.2Effects of the Transaction on ongoing franchise agreements

5.4.3Effects of the Transaction on new franchise agreements 5.4.4Conclusion 6CONCLUSION (2) (1)On 23 May 2016, the European Commission received a notification of a proposed concentration pursuant to Article 4 of Council Regulation (EC) No 139/2004 by which the undertaking Marriott International, Inc. ("Marriott") acquires within the meaning of Article 3(1)(b) of the Merger Regulation sole control of the undertaking Starwood Hotels & Resorts Worldwide, Inc. ("Starwood"). Marriott and Starwood will hereinafter collectively be referred to as "the Parties". 1THE PARTIES (2)Marriott is a diversified hospitality company which acts as a manager and franchisor (and on rare occasions, owner) of hotels and timeshare properties in 85 countries and territories. Marriott owns 19 hotel brands internationally, including: The Ritz-Carlton, EDITION, JW Marriott, Autograph Collection Hotels, Renaissance Hotels, Marriott Hotels, Delta Hotels and Resorts, Marriott Executive Apartments, Marriott Vacation Club, Gaylord Hotels, AC Hotels by Marriott, Courtyard, Residence Inn, SpringHill Suites, Fairfield Inn & Suites, TownePlace Suites, Protea Hotels and Moxy Hotels. In addition, it has a license agreement to utilize the Bulgari brand for hotels. As of 30 June 2016, there will be 275 hotels in the EEA operating under Marriott brands, with […] rooms. (3)Marriott has a loyalty program marketed under two brands, Marriott Rewards and Ritz-Carlton Rewards. (4)Starwood is also a manager and franchisor (and on rare occasions, owner or leaseholder) of hotels and resorts worldwide, with nearly 1 300 properties in some 100 countries. Starwood owns the following hotel brands: St. Regis, The Luxury Collection, W, Westin, Le Méridien, Sheraton, Four Points by Sheraton, Aloft, Element, and the recently introduced Tribute Portfolio. As of 30 June 2016, there will be 145 hotels in the EEA operating under Starwood brands, with […] rooms. Starwood owns and operates […] of these hotels […], with […] rooms […]. Starwood manages […] of these hotels […], with […] rooms […], under management agreements for third-party owners. […] of these hotels […], with […] rooms […], are franchised hotels, for which Starwood is neither the owner nor the operator of the hotel. (5)Starwood’s loyalty program is Starwood Preferred Guest. 2THE OPERATION (6)Pursuant to an agreement and plan of merger dated 15 November 2015 and amended on 20 March 2016, Marriott will acquire sole control over Starwood. The Transaction is a result of a series of internal preparatory steps, following which Starwood will be absorbed by a wholly-owned subsidiary of Marriott. As a result, Marriott will be the sole “parent” company of the Starwood group and therefore through the Transaction, Marriott would acquire sole control of Starwood. Marriott's Charter and Bylaws will govern the merged entity post-Transaction. All fourteen board members of the merged entity will be appointed by Marriott and have a fiduciary duty to Marriott's shareholders. (7)Therefore, the Transaction constitutes a concentration within the meaning of Article 3(1)(b) of the Merger Regulation. 3EU DIMENSION (8)The undertakings concerned have a combined aggregate worldwide turnover of more than EUR 5 000 million (Marriott: EUR 22.6 billion, Starwood: EUR 11.8 billion). Each of them has a Union-wide turnover in excess of EUR 250 million (Marriott: EUR […], Starwood: EUR […]), but they do not achieve more than two-thirds of their aggregate Union-wide turnover within one and the same Member State. (9)The concentration therefore has a Union dimension under Article 1(2) of the Merger Regulation. 4MARKET DEFINITION 4.1Introduction (10)The Parties are both active in the hotel industry. More concretely, 275 hotels operate under Marriott brands in the EEA, with a total of […] rooms. […] hotels are operated under Starwood brands in the EEA, with a total of […] rooms.

(11)The operation of a hotel may involve up to three different parties: (a)the entity that owns or leases (as the tenant) the hotel; (b)the entity that manages the hotel; and (c)the entity that owns the brand under which the hotel operates. (12)As a result, hotels may be operated under one of the three following main business models: (a)Under the first model, hotels are owned and managed by the same company under its own name or brand, which has sole control over them. Hotels operated under this model will be referenced as "owned or leased hotels" in this Decision. (b)Under the second model, hotels are managed by a company − hotel chain or specialised management company ("white label management companies") − on behalf of their owner for a management fee. These hotels are operated under the name or brand of the manager, notably if the latter is a hotel chain, or the owner, if the manager is a white label management company. Hotels operated under this model will be referenced as "managed hotels" in this Decision. (c)Under the third model, hotel chains franchise one of their brands to hotel owners, who either manage their hotels themselves or use a third management company. Hotels operated under this model will be referenced as "franchised hotels" in this Decision. (13)Marriott submits that hotels operating under the Marriott and the Starwood brands belong to all three categories. More concretely, as of 30 June 2016, Marriott owns […] and leases […] hotels with a total of […] rooms in the EEA, manages […] hotels with a total of […] rooms on behalf of their owners and franchises its brands to another […] hotels with a total of […] rooms. Starwood owns […] hotels with […] rooms in the EEA, manages […] on behalf of their owners with a total of […] and franchises […] with […] rooms. (14)According to Marriott, companies active in the sector may choose to operate under different models, some owning or leasing a greater proportion of hotels operating under their brands, whereas others may prefer managed or franchised hotels. Both Parties have over time adopted an asset-light business model, under which they separate ownership of the real estate from the hotel management business and the hotel franchising business and increasingly focus their activity on the latter two. (15)This variety of business models and ways of operating a hotel has been confirmed by the Parties' competitors and other market participants. Indeed, several hotel chains, such as Hilton, Accor, IHG and others, indicate in the context of the market investigation that hotels operating under their brands may be owned/leased, managed or franchised and that, in addition to the operation of owned or leased hotels, they also engage in the provision of hotel management and hotel franchising services. (16)In light of the above, in the EEA, the Parties' activities overlap on markets for the provision of hotel accommodation services, markets for the provision of hotel management services and markets for the provision of hotel franchising services. 4.2Relevant product markets 4.2.1Hotel accommodation services (17)The Commission has in its prior decision practice considered a separate market for the provision of hotel accommodation services, leaving however the exact product market definition open. (18)Marriott submits that there is a spectrum of differentiated offerings in the hotel industry and that the market is heterogeneous from both the demand and the supply side. While the main service provided is accommodation, the sleeping areas vary in terms of size, quality and range of furnishing, location of the room within the hotel etc. Similarly, the range and quality of ancillary services may differ, as some hotels offer 24-hour front desk services, operate restaurants and bars, spa facilities, gift shops, offer meeting spaces, etc. Given the many different services that may or may not be provided in addition to hotel accommodation and the different levels of quality in the provided services, hotels can be differentiated in a multitude of ways. Any hypothetical means of segmentation however, will, according to Marriott, necessarily be highly imperfect as the boundaries between any sub-segments of the total market for hotel accommodation will be blurred. Finally, Marriott believes that the exact market definition can ultimately be left open. (19)The majority of respondents to the market investigation having expressed an opinion also indicate that a further segmentation of the market for hotel accommodation services is not warranted. (20)Whether the market for hotel accommodation services should be further segmented will be analysed below. More concretely, it will be assessed whether the overall market should be sub-segmented by ownership type (Section 4.2.1.1) and/or by comfort/price level (Section 4.2.1.2). Moreover, it will be assessed whether a distinct product market should be considered for accommodation services in short-stay residences (Section 4.2.1.3), or for the provision of specific services, such as conferences and events services, hotel loyalty programs, etc. (Section 4.2.1.4). 4.2.1.1Distinction by ownership type 4.2.1.1.1Commission's practice

(21)In its prior decision practice, the Commission has considered a sub-segmentation of the overall market for hotel accommodation by ownership type. More concretely, the Commission distinguished between three types of hotels, namely (i) economically and legally independent hotels; (ii) voluntary chains consisting of groups of independent hotels which carry out their marketing, promotion, purchasing etc. under one and the same hotel brand; and (iii) integrated chains which operate hotels directly through subsidiaries or indirectly by a franchise or management contract. (22)The Commission identified the following elements as distinguishing the offer of hotel chains from that of independent hotels. From the supply side, hotel chains are organised on the basis of a network concept which meets service requirements that go beyond the purely local framework, are much more uniform from one hotel to another and more extensive (e.g. extended opening hours, central reservation system, restaurants, etc.). Moreover, hotel chains operate under a common hotel name and trade mark and have a common marketing strategy for all hotels of the chain, which enables them to raise awareness of their brand much more effectively and at a lower cost than independent hotels would. They also use own centralised reservation systems or have access to international reservation systems, such as Amadeus, Galileo, etc. Last, hotel chains pursue a policy of actively seeking customers, by approaching travel agents, tour operators, corporate customers etc. and offering them differentiated rates, promotions and additional services in order to increase their total sales across the chain. Also from the demand side, large customers such as travel agents, tour operators, corporate customers etc. prioritise hotel chains, with which they can enter into framework contracts setting out negotiated conditions for prices, terms of payment, commissions and discounts. (23)The Commission further acknowledged that independent hotels increasingly organise themselves in voluntary chains. In doing so, they become substitutable to hotel chains and increase the offer available to corporate customers, tour operators and travel agencies. (24)Ultimately however, the Commission has always left open whether the market for the provision of hotel accommodation services should be further segmented on the basis of ownership type. 4.2.1.1.2Marriott's views (25)Marriott submits that independent and chain hotels are substitutable and in competition with each other and that the elements on the basis of which the Commission differentiated between the two in its prior practice do not apply to the industry today. (26)More concretely, independent and chain hotels are in the position of offering similar types of services and amenities. Moreover, not all hotel chains offer uniform services among their hotels. The increased operation of hotels under management and franchise contracts allows for a more independent operation of hotels belonging to the same chain. The proliferation of information technology, internet travel websites and reservation platforms have changed the industry and placed chain and independent hotels on an equal footing, as they both have immediate access to millions of customers. Similarly, customers are also empowered to shift their bookings quickly and efficiently away from any hotel operator that fails to meet their expectations on price or quality/facilities. Last, both chain and independent hotels actively compete for corporate customers and cooperate with travel agents and tour operators, as both chain and independent hotels offer promotional packages and special prices. (27)Marriott further points out that operators of independent hotels have a particularly strong presence in the EEA, corresponding to approximately 70% of all hotels. Also, chain hotels are in competition with independent hotels, as evidenced by the fact that they benchmark themselves against both chain and independent hotels. Excluding independent hotels from the relevant market and from the competitive assessment, would therefore in Marriott's view fail to reflect market reality. 4.2.1.1.3Commission's assessment Membership to a chain (28)Hotel operators consider themselves in competition with both independent and chain hotels. Indeed, the Parties' hotels' competitive sets, i.e. the list of hotels against which Marriott and Starwood hotels benchmark themselves and the performance of which they monitor, consist of both chain and independent hotels. For instance, [examples of independent hotels included in the Parties' competitive sets in Milan] are included in the Parties' competitor sets in Milan, [examples of independent hotels included in the Parties' competitive sets in Barcelona] in Barcelona etc. (29)Furthermore, the Parties' competitors having expressed an opinion in the Commission's market investigation indicate that whether a hotel belongs to a chain or is independent is not among the main drivers of customers' choice between hotels. Instead, features such as price, comfort level and customers' ratings are more important for the selection of a hotel within a given location. Similarly, customers, as well as travel agents and tour operators, also explain that they select hotels taking into account first elements such as price and comfort level, as well as corporate policy, in the case of corporate customers, and users' ratings for end consumers in general. Features such as the affiliation with a chain, the brand and the offering of loyalty programs on the other hand are not among customers' main selection criteria. Technological development and industry evolution (30)The EEA travel industry has evolved significantly in the last decades, most notably through technological developments, such as the broader use of information technology and online tools and sources, and through the increasing number of hotel chains. (31)First, the widespread use of internet travel websites has created an environment of instant transparency, enabling every hotel in the marketplace to reach consumers everywhere and communicate their quality, service, and prices to consumers without incurring high costs. In particular through online travel agents ("OTAs"), customers can quickly and easily compare without material costs not only the offerings of all chain and independent hotels, but also their performance through users' reviews. In addition, metasearch engines such as TripAdvisor, Google and Amazon are further streamlining the hotel booking process by creating travel meta-search platforms such as Google Hotel Finder and by leveraging tools such as Google Maps. Furthermore, OTAs and metasearch engines also operate as quasi-international reservation systems, giving independent hotels a reach over a global customer base that is comparable to that of chain hotels. (32)Second, a number of companies offer technology solutions to hotels that facilitate the distribution of their services, enable direct bookings by customers, help hotel operators to establish access to travel agents’ and tour operators’ platforms and metasearch engines. Further services supporting the operation of a hotel, such as business intelligence media, distribution strategy support, revenue management tools and other services are also available on the market and may be used by chain and independent hotels alike. Therefore, independent hotels have nowadays access to technology solutions that give them the possibility to provide easy customer interface and improve their overall performance. (33)The majority of respondents having expressed an opinion in the market investigation submit that chain and independent hotels are rather interchangeable regarding their presence on different distribution channels, but not regarding their access to centralised reservation systems. Against the background of the overall development of the sector however, even in the case of independent hotels that do not have access to centralised reservations systems, customers usually can make online reservations either directly on the hotel's website or through OTAs. Hence, the significance of access to centralised reservation systems appears to have diminished in comparison to past years. (34)Third, the overall evolution of the industry has further facilitated the organisation of independent hotels in either voluntary or integrated chains in recent years.

(35)In the case of voluntary chains, independent hotels set up or enter into affiliations that operate under a common brand, enabling them to promote each other's services. Members of voluntary chains share centralised resources and a wide spectrum of tools and services, such as marketing and advertising support, sales and distribution services, access to global distribution and internet reservation systems, revenue management tools, interconnectivity with OTA platforms, training services, quality systems, loyalty programs, etc. Some of these voluntary chains have a large geographical footprint and account for several hundreds of members, as for example Leading Hotels of the World, Worldhotels, Preferred Hotels, etc. (36)Membership to an integrated chain has also evolved in recent years, as business models based on hotel franchising are more broadly used, whereas in the past chain hotels were typically owned and operated by the chain owner. Conversely, today, the number of hotel chains operating in the EEA under an "asset light" model, whereby they focus on the provision of management and franchising services to hotel owners rather than the ownership of their hotels has significantly increased. The more widespread use of a hotel operation model based on franchising has thus provided owners and operators of independent hotels with the option to join a hotel chain, while retaining a significant degree of independence. This way, they have the possibility to profit from the hotel chain's brand awareness, systems and tools and know-how, while maintaining control over the management of their hotel. The degree of independence of franchised hotels will be further analysed in Section 5.2.1.2 below. Price rates, services and amenities (37)Overall, with regard to the price rates and the services and amenities offered, no particular differences are identified between chain and independent hotels. The majority of respondents having expressed an opinion in the market investigation submit that chain and independent hotels are interchangeable in terms of price. (38)Among hotels of similar comfort/price level, offerings such as 24h front desk coverage, gym and pool facilities, restaurants and bars are provided by both chain and independent hotels. The majority of respondents having expressed an opinion in the market investigation also consider that the range of services and amenities offered by chain hotels is interchangeable with that offered by independent hotels. (39)As to the uniformity of the services offered from one hotel to another, the majority of respondents having expressed an opinion in the market investigation submit that chain hotels offer more uniform products and services from one hotel to another than independent hotels do. Several other respondents, however, indicate that the level of uniformity depends on the specific chains and brands and that, in particular in the case of voluntary chains or chains of franchised hotels, the services offered may vary significantly between hotels belonging to the same chain. Indeed, in a number of hotel chains, a significant degree of differentiation in the appearance, style and service offerings of member hotels is maintained. In the case of high end integrated chains, such as Marriott's Autograph Collection hotels, this may be a strategic choice to appeal more to customers that value individuality. In voluntary chains, it is a result of the business model that provides for cooperation in some aspects of member hotels' activity, but not for the standardisation of their offerings. In addition, offerings' uniformity has overtime become significantly less relevant as the increased use of OTAs and metasearch engines enables customers not only to acquire immediate information as to the various hotels' service offerings, but in most cases to also see pictures and read users' reviews about the quality and availability of the various services. (40)A service feature, typical of chain hotels that are organised in a network, is the set-up of loyalty programs, rewarding customers' multiple stays in hotels of the chain. In recent years, certain loyalty programs are also available to customers of independent hotels. This is primarily facilitated through the participation of independent hotels into loyalty programs offered by aggregators, such as OTAs, metasearch engines, etc. Customers of independent hotels that have opted to participate in such OTA loyalty programs, receive rewards related to car rental companies, hospitality providers, etc. if they use the respective OTA for their bookings. The majority of respondents having expressed an opinion in the market investigation however submit that, with regard to loyalty programs, the offer of chain hotels is not substitutable for that of independent hotels. Access to the customer base (41)Independent and chain hotels alike have access to the same customer base. The technological developments and overall evolution of the sector not only helped independent hotels to raise awareness of their brands among a larger part of the customer base through more distribution channels and OTAs. These developments and evolution further enabled them to compete for corporate customers, tour operators and travel agents, which in the past appeared to prioritise chain hotels for their bookings. Indeed, even though the majority of respondents having expressed an opinion in the market investigation indicate that chain hotels have more recognition and can more easily reach or be reached by customers than independent hotels, they also submit that customers, including corporate customers, purchase hotel accommodation services from both chain and independent hotels. (42)First, corporate customers explain that location is one of the main criteria for selecting a hotel accommodation, as they are interested in ensuring the proximity of their staff to the working premises. The requests for proposals they solicit are therefore addressed to hotel operators in the particular area of their interest, irrespective of whether these belong to a chain or not. Ultimately, corporate customers select a number of hotels, with which they enter into a contractual relationship, on the basis of the proposals submitted by the hotel operators. Even though the majority of corporate customers having expressed an opinion in the market investigation indicate that chain hotels have an easier access to corporate customers than independent hotels, notably due to their dedicated sales departments and ability to centralise purchases for a greater number of locations, they unanimously submit that they purchase hotel accommodation services from chain and independent hotels. (43)Second, large OTAs submit that not only they include both independent and chain hotels in their inventory, but that the majority of their inventory corresponds to independent hotels. Moreover, OTA users do not seem to limit their search of hotel accommodation provider to chain hotels, as Booking.com submits that users do not usually filter based on specific brands and Expedia that it does not offer their users any filter function allowing them to distinguish between chain and independent hotels. The majority of respondents having expressed an opinion in the market investigation further indicate that OTAs prioritise offerings irrespective of whether the hotels belong to chains or are independent. (44)The majority of travel agents and tour operators having expressed an opinion in the market investigation also indicate that they propose to their customers hotel accommodation services from both chain and independent hotels alike and that they give the same visibility and priority in their offerings to chain and independent hotels. Moreover, independent hotels may also offer promotional packages to tour operators and travel agents, following the practice of chain hotels. The Parties submit and travel agents and tour operators having expressed an opinion in to the Commission's market investigation also indicate that in most chain hotels, the pricing strategy is decided at the level of the hotel and not centrally by the headquarters for the entire chain. Therefore, the position of independent hotels is not significantly different from that of chain hotels, when it comes to their ability to make promotions and offer rebates to tour operators and travel agents. The majority of travel agents and tour operators having expressed an opinion in the market investigation also indicate that whether a hotel operator offers special prices, discounts, promotional packages, related services such as car rental etc. usually depends on each operator and its contractual relationship with the travel intermediary, rather than on its membership to a chain. (45)Third, independent hotels may also pursue a policy of actively seeking customers, as they have access to a number of distribution channels and tools that may further increase their reputation. Illustratively, some OTAs use priority listings systems, giving greater visibility to hotels that are prepared to pay for this service. The fact that independent hotels are in some instances displayed among the first results of searches in OTA's websites, indicates that they are not only able, but actually making use of this opportunity to increase their customer base. Some travel agents and tour operators having expressed an opinion in the market investigation state that they offer some form of priority listing for hotel operators willing to pay for such service. Among these travel intermediaries, the majority indicates that whether a hotel operator will choose to make use of such priority listing is unrelated to it being a chain or an independent hotel. 4.2.1.1.4Conclusion (46)In light of the above considerations, the consumers' need to rely on brand as a signal of quality and likely performance has reduced in recent years. Chain and independent hotels offer a similar range of services and amenities at similar prices and have access to broad distribution networks and tools alike enabling them to reach the largest part of the customer base, raise awareness of their service offerings and provide user-friendly reservation systems. (47)Therefore, the Commission concludes that, for the purposes of this Decision, the market for hotel accommodation services should not be further segmented on the basis of ownership type, but rather comprise hotel accommodation services supplied by both chain and independent hotels. (48)However, because of, inter alia, their more limited access to centralised reservation platforms and loyalty schemes, independent hotels may exert a somewhat lower competitive pressure on chain hotels than chain hotels do on each other. This element will be taken into account in the competitive assessment (Section 5.2), in particular when assessing if the Parties compete closely with each other on the markets for hotel accommodation services. 4.2.1.2Distinction by comfort/price level 4.2.1.2.1Commission's practice (49)The Commission has in its prior decision practice considered a possible segmentation of the market for hotel accommodation by comfort/price level. This segmentation was notably based on the star-rating of each particular hotel, the star rating being indicative of the standard and facilities the customer may expect when selecting a specific hotel.

(50)In past cases, the Commission has considered narrower sub-segments for hotels having the same star rating, for instance 4-star hotels only, 5-star hotels only, etc., as well as broader sub-segments of the total market including hotels with successive star ratings, such as 4- and 5-star hotels combined, 3- and 4-star hotels combined, 2-, 3- and 4-star combined, etc. Broader categories were taken into account, as even though the star rating reflects the standard and facilities customers may expect from a specific hotel, hotels belonging to successive star categories may in many instances be substitutable from a consumer point of view in terms of price, location and services. (51)Ultimately, however, the Commission has always left open whether and in which way the overall market for hotel accommodation services should be sub-segmented by comfort/price level. 4.2.1.2.2Marriott's views (52)Marriott submits that the high degree of differentiation among hotels does not lend to a clear segmentation of the market by comfort or price level. Rather, the provision of hotel accommodation services comprises a spectrum, in which hotels offering diverse service and quality levels compete with hotels both up and down the spectrum. According to Marriott, there is a high degree of substitutability among portions of the spectrum and this substitutability often spans multiple star categories. Although a consumer may be unlikely to view a 5-star hotel and a 1-star hotel as substitutes for one another, customers can and do consider hotels with different star-ratings as potential substitutes, particularly those with adjacent star ratings, for instance 5-star and 4-star hotels; 4-star and 3-star; etc. (53)Marriott further submits that the segmentation by category used in the industry does not constitute a reliable proxy for market definition purposes, as hotels with similar locations, amenities and price points that clearly compete with each other are classified into different categories. 4.2.1.2.3Commission's assessment (54)Hotel classification systems by comfort/price level exist in most Member States at national and regional level. A great number of hotel associations have contributed to the development of such systems, either on their own initiative or in collaboration with public authorities. As a result of the differences in culture and geographical situations, there are also significant differences between the criteria and methodology followed by the systems used in the various EEA countries. (55)The most well-known of these classification systems appear to be the star-rating system, which is widely used and most visible to consumers, and the class-segmentation, which is widely used by hotel operators in industry reports, market monitoring, etc. Segmentation by star rating (56)The star-rating system provides generally for a rating of 1 to 5 stars, granted to hotels on the basis of certain criteria linked to the type of services they offer and their quality. (57)Against the background of the various national or regional classification systems using diverse criteria, star-ratings may not always provide equivalent comparisons between hotels located in different geographic areas. Within a particular country or city, however, where a single star-rating system would be applied, the number of stars awarded to hotels would constitute a relevant proxy for comparing their offerings. Indeed, by comparing the services and amenities, as well as the price of hotels with the same star rating in the same location, greater similarities may be identified than when comparing them with hotels with a different star rating. Nevertheless, individual 4-star hotels for example may at times offer a broader service range or be priced higher than 5-star hotels in the same location. (58)Several sophisticated customers and competitors having expressed an opinion in the market investigation indicate that in light of these discrepancies and the fact that customers nowadays rely more on users' ratings for their hotel selection, star rating systems are losing in significance. The majority of competitors having expressed an opinion in the market investigation thus consider that a segmentation of the market by star rating is not required. (59)On the other hand, star rating appears to be a significant criterion for at least part of the customer base, as reflected in its widespread use by consumers throughout the world, notably through online travel agents. Among the customers having expressed an opinion in the market investigation that consider a segmentation of the total market by comfort/price level warranted, the majority submits that this segmentation should be done by star rating. (60)The majority of respondents having expressed an opinion in the market investigation submit that 3-star hotels are not substitutable for 4-star hotels and similarly that 4-star hotels are not substitutable for 5-star hotels. As, however, several respondents also point out that some competitive pressure is exerted by hotels with a subsequent star rating, the existence of broader market segments encompassing both 4- and 5-star hotels is not excluded. Segmentation by category (61)A different type of hotel classification by comfort/price level is widely used among hotel operators and notably by hotel chains, as it is the classification followed by leading providers of competitive benchmarking, information services and research in the hotel industry. Chain and independent hotels are distinguished into up to six different categories (classes or scales), on the basis of their actual average room rates. In the case of chain hotels, the classification is done on a brand basis on a global chain-wide level, namely all hotels belonging to certain brand are classified in the same category, even if there is some degree of differentiation in the services they provide. (62)As the classification into the various categories is done globally for entire brands, it is not a very accurate indicator of the comfort/price level of each specific hotel. This possible inconsistency between the category in which a specific hotel is classified and its actual quality is also reflected in the comparison between the star rating of specific hotels and the category in which these same hotels are classified. Moreover, as already indicated, even if hotel chains use this type of classification, customers are not familiar with it and rely instead on hotels' star-rating, which is widely communicated in all distribution channels. 4.2.1.2.4Conclusion (63)In light of the above considerations, the Commission concludes that, for the purposes of this Decision, it can be left open whether the market for hotel accommodation services should be further segmented by comfort/price level on the basis of hotels' star rating. Should narrower distinctions by star rating be considered, it can be left open whether 4-star and 5-star hotels form part of the same market. A distinction by comfort/price level on the basis of comfort classes is considered by the Commission not relevant for the purposes of this Decision.

4.2.1.3Market for accommodation services in short stay residences (64)In addition to the provision of hotel accommodation services, both Parties have limited serviced apartments offerings, corresponding to short stay residences. More-over, Starwood has some "residential apartment" offerings, i.e. long-term leasehold or owned apartments in some of the hotels it operates. Marriott does not have any "residential apartment" offerings. 4.2.1.3.1Commission's practice (65)The Commission considered in prior decisions whether short stay residences would form part of a broader hospitality market, also including hotel accommodation services. The Commission identified some differences between the two types of services, as short stay residences are usually larger than hotel rooms and equipped with a kitchen, the services offered in addition to the accommodation are more limited, the customer base consists mainly of corporate customers and the average stay is longer than in the case of hotels. Ultimately, the Commission left the exact definition of the product market open. 4.2.1.3.2Marriott's views (66)Marriott submits that serviced apartments do not belong to a separate product market, as they compete not only with conventional hotel rooms, but also with other short stay properties, such as short-term lets and new entrants like Airbnb. More-over, even if a separate market for short stay residences or serviced apartments were considered, the Parties' activities in such market are limited, as there are […] properties with a total of […] serviced apartments or residential offerings under Marriott brands in the EEA, and […] properties with a total of […] serviced apartments operated under Starwood brands. 4.2.1.3.3Commission's assessment (67)Given the limited scope of the Parties' activities in offering serviced apartments, the Transaction would not materially impact any plausible separate market for accommodation services in serviced apartments. Moreover, even if these activities were considered together with hotel accommodation services, as part of a broader market encompassing both activities, the impact of the Transaction would not materially change. (68)The inclusion of serviced apartments in or their exclusion from the market for hotel accommodation services would therefore not affect any of the conclusions about the effects of the Transaction reached in this Decision. The Parties' serviced apartments' offerings will thus not be further analysed. However, as analysed in Section 5.2.1.3, the Parties' serviced apartments' offerings will, on a conservative basis, be added to their share on markets for hotel accommodation services. 4.2.1.3.4Conclusion (69)Therefore, the Commission concludes that, for the purposes of this Decision, it can be left open whether accommodation services in short stay residences and in hotels form part of the same product market. 4.2.1.4Markets for the provision of specific services (70)Within the framework of their overall activity as providers of hotel accommodation, the Parties also offer a number of other services. For example, some Marriott and Starwood hotels offer facilities and services for conferences, meetings and small events, fitness facilities, food and beverages through onsite restaurants and bars, gift shops, loyalty programs, etc. (71)Such services provided on site in the various Marriott and Starwood hotels are peripheral to the Parties’ primary activity and revenue stream, which is the provision of hotel accommodation services. In that sense, meeting facilities/services, restaurant facilities, spa facilities etc. are provided by the Parties as an alternative to guests using non-hotel providers for the purchase of such services and aim at facilitating the hotel accommodation business. Moreover, asked specifically about conference and event services, the majority of the respondents having expressed an opinion in the market investigation indicate that it is ancillary to hotel operators' primary business and intended to increase the hotels' occupancy rates. (72)In light of the above, and considering all evidence available to the Commission, the Commission concludes that the provision of additional services, e.g. for conferences and events, fitness and spa, food & beverage, loyalty programs etc. by hotel operators is ancillary to hotel accommodation services and as such will not be further analysed in this Decision. (73)As set out in Section 5.2, the Parties' activities in relation to the provision of services beyond hotel accommodation will be taken into account in view of assessing if the Parties compete closely with each other on the markets for hotel accommodation services. 4.2.1.5Conclusion (74)In light of the above, and considering all evidence available to the Commission, the Commission concludes that, for the purposes of this Decision, the relevant product market is the market for hotel accommodation services, comprising hotel accommodation services provided by both chain and independent hotels. (75)It is not necessary, for the purposes of this Decision, to conclude on a potential further segmentation of that market by comfort/price level on the basis of hotels' star rating in segments consisting of hotels with the same star rating or segments consisting of hotels with subsequent star ratings. 4.2.2Hotel management services

4.2.2.1Definition of hotel management services 4.2.2.1.1Commission's practice (76)The Commission has not, in its prior decision practice, defined a market for the provision of hotel management services. (77)However, it has considered a separate market for the provision of real estate management services, i.e. the management and operation of real estate on behalf of its owner. Such market could be sub-segmented between the provision of management services to real estate properties for residential and for commercial use. Narrower segments based on the final destination of the properties to be managed for commercial use, such as offices, industrial properties, retail properties were also considered. Ultimately, the Commission left the exact market definition open. 4.2.2.1.2Marriott's views (78)Marriott submits that hotel management services are services provided to hotel owners by both hotel chain operators in the context of management agreements concluded with hotel owners as well as by other players such as management companies not affiliated with a particular hotel brand ("white label management companies"). Those services relate to the day-to-day operation of a hotel and include financial accounting, generating revenue, managing hotel-specific relations, advertising, promotion and marketing services, IT support, human resources management, executing and supervising repairs and maintenance of the hotel. 4.2.2.1.3Commission's assessment (79)In the Commission's market investigation, a majority of respondents agrees that the supply of hotel management services can be defined as operating a hotel for an owner typically in return for fees and/or a share of revenues (including financial accounting, generating revenue, managing hotel specific relations, advertising, promotion and marketing, IT support, managing human resources, executing and supervising repairs and maintenance). (80)In addition, two respondents underlined the importance of brands in the definition or segmentation of hotel management services, although those two respondents reached relatively opposite conclusions. (81)The views expressed during the market investigation on the relevance of branding or franchising services as part of hotel management services confirmed that hotel owners deciding to use external providers of hotel management services may opt for either (i) management services that include brand franchising services by the management company, as offered by hotel chains, or (ii) management services that do not include hotel branding solutions, as offered by white label management companies. (82)Furthermore, several hotel chains active on the market for the provision of hotel management services, pointed to a possible link between, on the one hand, the use and scope of management services and their potential providers, and, on the other hand, the category of the hotel to be managed. 4.2.2.1.4Conclusion (83)In light of the above considerations, the Commission concludes that there is a separate market for the provision of hotel management services, defined as operating a hotel for a third-party hotel owner. Nevertheless, further assessment is needed to determine whether hotel owners regard the following hotel management services as interchangeable or substitutable: (i) services provided by hotel chains and white label management companies; and (ii) services provided for the management of hotels belonging to different star ratings or categories / classes. (84)The Commission will thus consider whether the market for the provision of hotel management services should be segmented based on (i) the types of providers (see Section 4.2.2.2 below) and (ii) the hotel comfort/price level (see Section 4.2.2.3 below). 4.2.2.2Distinction by type of providers (hotel chains versus white label management companies) 4.2.2.2.1Marriott's views (85)Marriott states that both chain operators and white label management companies offer the same types of management services to hotel owners and that from a hotel owner’s perspective, management services provided by a chain operator are substitutable with those provided by white label management companies. (86)To support that statement, Marriott compares hotel chains and white label management companies on the basis of specific elements of the management services, that is to say the fees they charge, their international expertise, and the types of hotels they manage. 4.2.2.2.2Commission's assessment (87)The responses to the market investigation questionnaires do not clearly show whether management services provided by a hotel chain, which are bundled with a license of one of the brands it owns, and management services provided by a white label management company, which are stand-alone services that the hotel owner may decide to combine (or not) with a license of a brand owned by a hotel chain, are demand substitutes.

(88)Overall, most responding hotel owners and hotel chains explained that, at the term of a management agreement, hotel management services provided by a hotel chain can be replaced by hotel management services provided by a white label management company, possibly together with a franchising agreement with a hotel brand owner. (89)However, their views were split about the ease or difficulty associated with the replacement of a managing hotel chain by a white label management company (possibly acting together with a hotel franchisor). Indeed, the proportion of respondents indicating that such a replacement can easily take place is comparable to the proportion of respondents declaring that such a replacement is subject to specific conditions, notably: (i) an appropriate level of know-how and capabilities of the white-label management company, and (ii) the ability to franchise the hotel under a brand with a comparable positioning. (90)In addition, one hotel chain that considered that hotel management services provided by a hotel chain cannot be easily replaced by hotel management services provided by a white label management company underlined the barriers and costs for a hotel owner entailed by the switch from management by a hotel chain to management by a white label management company. The described barriers do not appear to be specific to the replacement of a hotel chain by a white label management company; they could rather also exist in a situation of change of the managing hotel chain. (91)By contrast, the additional costs described by that hotel chain would be specific to the substitution of management services provided by a hotel chain by the combination of management services provided by a white label management company and of franchising services by a hotel brand owner. (92)Due to the specificities of the fee structure defined under each management agreement between a hotel chain and a hotel owner, the Commission is not in a position to relevantly compare, on the one hand, the average total fees due by a hotel owner under a management agreement with a hotel chain and, on the other hand, the sum due by a hotel owner of the management fees under a management agreement with a white label management company and of the franchise fees under a franchising agreement with a hotel chain. The Commission nevertheless notes that no hotel owner mentioned the potential difference in the overall fee levels as a barrier to switching to white label management companies. 4.2.2.2.3Conclusion (93)In light of the above considerations, the Commission concludes that, for the purposes of this Decision, it can be left open whether the market for the provision of hotel management services should be further segmented by type of providers (hotel chains versus white label management companies). (94)In the competitive assessment, the Commission will assess the Parties' positions on the potential segment of hotel management services provided by hotel chains, considering that (i) they do not operate on the other potential segment (services provided by white label management companies), and (ii) the Parties' combined market share would be diluted if hotel chains and white label management companies are considered as operating on the same market for the provision of hotel management services. 4.2.2.3Distinction by hotel comfort/price level 4.2.2.3.1Marriott's views (95)Marriott believes that the market for the provision of management services, if any, should not be segmented on account of specific hotel categories. It supports its opinion by providing examples of hotel chain operators, such as Accor, and white label management companies, such as Westmont and Interstate, that manage hotels across all comfort/price levels (all 5 star ratings and all STR classes). 4.2.2.3.2Commission's assessment (96)Most respondents to the market investigation consider that the market for the supply of hotel management services should not be further segmented. (97)Two hotel chains referred specifically to management services provided in the luxury and upper-upscale segments or in high quality scales. However, those references seem to aim at (i) qualifying the level of substitutability of management services provided by hotel chains, and (ii) insisting on the in-depth expertise required to operate high-end hotels, without implying however that such operations would constitute a separate market from operating lower-end hotels. (98)No hotel owner mentioned that the hotel management services they demand or the level of hotel management fees they owe to their providers would depend on the comfort/price level of the managed hotels. 4.2.2.3.3Conclusion (99)In light of the above considerations, the Commission concludes that, for the purposes of this Decision, the market for the provision of hotel management services should not be further segmented by hotel comfort/price level. (100)However, in assessing the competitive impact of the Transaction, the Commission will take into account the fact that Marriott and Starwood operate mainly high-end hotels (i.e. mainly 4- and 5-star hotels according to star ratings or luxury, upper upscale and upscale hotels according to STR classes). 4.2.2.4Conclusion (101)In view of the above, and considering all evidence available to the Commission, the Commission considers that the relevant product market is the market for the provision of hotel management services and that the question of its segmentation by type of providers (hotel chains versus white label management companies) can be left open, since no competition concerns arise on any plausible product market definition.

4.2.3Hotel franchising services 4.2.3.1Commission's practice (102)The Commission has in its prior decision considered a market for hotel franchising services, leaving the exact market definition open. 4.2.3.2Marriott's views (103)Marriott submits that franchise agreements essentially consist of licenses of industrial or intellectual property rights relating to trademarks or systems and know-how. In the hotel industry, the hotel is operated under the franchisor's brand name and the franchisor provides services to the third-party owner / manager against payment of fees by the third-party owner to the franchisor. 4.2.3.3Commission's assessment (104)In the Commission's market investigation, the Commission proposed to define hotel franchising as the issuing by a company (the "franchisor") of a contract authorising an unrelated company (the "franchisee") to use a specific name and logo, purchased for an annual fee plus "royalties" usually based on a percentage of sales. Franchisees share such benefits as brand-name identity, corporate image advertising, centralised reservation systems, corporate training programs and volume purchasing. A majority of respondents agrees with that definition. (105)In addition, most respondents having expressed an opinion consider that the market for the provision of hotel franchising services should not be further segmented. (106)Furthermore, no hotel owner mentioned that the hotel franchising services they demand or the level of hotel franchise fees they owe to their providers would depend on the typology or on the comfort/price level (including on the star rating or on the category / class) of the franchised hotels. (107)Therefore, the Commission considers that, for the purposes of this Decision, the market for the provision of hotel franchising services should not be further segmented by hotel comfort/price level. 4.2.3.4Conclusion (108)In view of the above, and considering all evidence available to the Commission, the Commission concludes that the relevant product market is the overall market for the provision of hotel franchising services. (109)However, in assessing the competitive impact of the Transaction, the Commission will take into account the fact that Marriott and Starwood franchise mainly high-end hotel brands (i.e. mainly 4- and 5-star hotel brands according to star ratings or luxury, upper upscale and upscale hotel brands according to STR classes). 4.3Relevant geographic markets 4.3.1Hotel accommodation services 4.3.1.1Commission's practice (110)In prior decisions, the Commission has left open the exact geographic scope of the market for hotel accommodation services. It has however noted that the relevant geographic market presented both national and local characteristics. The market was considered national because the structure of supply may vary from one market to another since the hotel industry is linked to national economic trends, whereas the conditions for competition are homogeneous at national level. In addition, the market was considered local, because a second degree of competition exists at a local level, the primary criterion for the choice of a hotel being its location. Cities can be considered as local markets for hotels as one of the main features of the hotel sector is its individual city character: customers select hotels in the city where they stay. 4.3.1.2Marriott's views (111)According to Marriott, the Commission should assess the Transaction by reference to cities. Indeed, from a demand-side perspective, for the vast majority of customers, hotels located in different cities in the same country are not substitutable with each other. From a supply-side perspective, in setting their prices, hotels will consider their product and price offerings relative to their competitors within the city and with respect to city-wide demand conditions. Marriott adds that administrative boundaries represent the most accurate approach to define a city, as they reflect the scope of each individual city irrespective of its size and layout in the most objective way. Further, administrative boundaries appear to correspond to the definition of a city found on OTAs, thereby also reflecting the way in which customers look for hotel accommodation services. Marriott is also of the view that there is no national (or wider) competition as all customer groups tend to make their choices on a local basis. 4.3.1.3Commission's assessment

(112)The majority of respondents to the market investigation submit that hotels primarily compete with each other at a local level for hotel accommodation services. (113)From the supply side, the way in which hotel operators benchmark themselves and analyse the market, for instance in view of setting prices, gathering market data etc., is also indicative of how they view the geographic scope of the market. Indeed, the competitive sets designed by Marriott and Starwood hotels include a number of competing hotels in the same location and not in different locations within the same country. Similarly, when asked about the way prices are set at the various hotels, the majority of respondents indicate that, even if some pricing guidelines are set centrally in the case of hotel chains, the final price is set at hotel level. Moreover, when setting prices, the majority of respondents explain that they take into account the market prices for hotels of the same comfort/service level in the same location and that the prices of hotels in the vicinity are a very important criterion in setting the rates for the supply of hotel accommodation services by a specific hotel. (114)From the demand side as well, the majority of respondents having expressed an opinion in the market investigation indicate that even if corporate contracts have a broad, often worldwide scope and are negotiated at chain level, they are for the purpose of the tendering procedure organised on a city-by-city basis, whereby specific terms, such as the participating hotels, the pricing, etc., are dealt with at local level. Indeed, customers explain that in view of concluding corporate contracts, they first identify the locations in which they are interested and subsequently invite, directly or through the hotel chain headquarters, hotels in these locations to submit an offer for their accommodation services. Moreover, a large number of respondents point out that location is among the key drivers of customers' selection. (115)As to the precise delineation of the local market, most respondents having expressed an opinion in the market investigation indicate that this could be either a city or a city district, in particular in the case of larger cities like London, Paris, etc. Moreover, industry reports, such as the STR Global's STAR Report, analyse the market primarily on the basis of cities based on their administrative borders, as well as according to smaller districts within a city ("tracts"), notably as far as larger cities are concerned. (116)Such narrower segmentation, however, does not appear to adequately reflect the competitive relationship between hotels located in the same city. Indeed, by sub-segmenting on that basis, hotels falling under different tracts or belonging to different districts may be closer to each other than hotels within the same tract or district. In the case of London for example, if a narrower market for North Central London were considered, hotels in Camden Town and hotels in Marylebone would be considered as part of the same geographic market, even though within a distance of approximately 3 km, whereas hotels in Marylebone and Mayfair at 1 km distance would belong to separate markets. Hotels located in neighbouring city districts appear thus to exert competitive pressure on each other. Therefore, even if such narrower segments were to be considered, a chain of substitution would exist between hotels located in neighbouring districts and the total market would again amount to a broader city-wide market for hotel accommodation services. As set out in Section 5.2.3.1.2, however, the potential higher competitive pressure exerted between hotels located in close proximity will be taken into account when assessing whether the Parties compete closely with each other on the markets for hotel accommodation services. (117)The case of city airports may however be somewhat different, as hotels in the airport area are located in close proximity to the airports, which in many instances are in the outskirts of their respective city. Moreover, the consideration of the relevant geographic market on the basis of an area's administrative limits would likely not reflect the competitive conditions also in the case of non-city destinations. In the cases of resorts, islands, etc., the administrative limits of a city may not reflect the scope of the market for hotel accommodation services. Elounda, for example, in which the Parties' activities overlap, is a small fishing town in the Lasithi region in Crete. Numerous other similar towns exist in the same region and in Crete as a whole and hotels situated in those towns are in competition with those in Elounda for guests visiting Crete. 4.3.1.4Conclusion (118)In view of the above, and considering all evidence available to the Commission, the geographic market for hotel accommodation services appear to be local. (119)The exact delineation of the local market may however be left open, including the possibility of city-wide markets or markets covering a broader e.g. resort area, since no competition concerns arise on any plausible geographic market definition. Similarly, whether cities and their respective airport areas shall be considered as part of the same geographic market may also be left open, as no competition concerns would arise, irrespective of the exact delineation of the geographic market. (120)The Commission concludes that, for the purposes of this Decision, the market for hotel accommodation services should not be further segmented by city districts. 4.3.2Hotel management services 4.3.2.1Commission's practice (121)The Commission has not in its prior decision practice defined a market for the provision of hotel management services. (122)Concerning the potential market for the provision of real estate management services and all its sub-segments, the Commission has in its prior decision practice left the geographic market definition open, notably whether it is national or local. 4.3.2.2Marriott's views (123)If there were a separate market for the provision of hotel management services, Marriott considers that the narrowest possible scope would be EEA-wide because management services are being provided across the EEA (and often globally) by the relevant hotel chains, as well as by white label management companies. A potential geographic market which would be narrower than EEA would not reflect market reality as the majority of both chain operators and white label management companies are seeking management opportunities and provide their services at least across the EEA and most of them globally. (124)Indeed, Marriott considers that the most fundamental aspects of the competition conditions on a potential market for the provision of hotel management services are broadly similar at a worldwide level. Over the past two decades, Marriott has observed an increasingly competitive worldwide marketplace for the provision of management services to hotel owners. Equally, there is a global demand for the provision of management services. (125)In addition, the types of services offered under a management agreement are broadly similar across the globe. Likewise, the fee structure of Marriott's management agreements is broadly uniform worldwide, with the exception of the USA. 4.3.2.3Commission's assessment (126)To obtain the general views of market participants on the plausible geographic markets for the provision of hotel management services, the Commission asked the Parties' competitors as well as hotel owners and white label management companies to identify the geographic area on which hotel management companies primarily compete with each other for the supply of hotel management services.

(127)That general question yielded mixed results. The most frequent answer was "worldwide", but the results of the market investigation do not enable to totally exclude "locally", "nationally" or "it depends". In addition, most respondents having expressed an opinion considered that hotel management companies also compete with each other in other geographic areas for the supply of hotel management services. (128)With regard to the plausibility of a local market, the Commission is of the view that the minority of hotel owners taking the view that hotel management companies primarily compete locally for the supply of hotel management services explain their choice by reference to a different market, i.e. the market for hotel accommodation services. They notably refer to the local competition between hotels, which may encourage multi-property hotel owners to diversify their portfolio of management companies. (129)The influence of the functioning of the market for hotel accommodation services is also to be found in the explanations of hotel owners that chose "it depends" as a reply to the question on the geographic area on which hotel management companies primarily compete. One hotel owner notably explained that the geographic scope of the competition for the provision of hotel management services depended on the size of the local market (city). (130)However, no hotel owner established any correlation between the scope of the competition on the market for hotel accommodation services and the scope of the competition on the market for the provision of hotel management services. In particular, no hotel owner mentioned that the market for the provision of hotel management services was characterised by differences in price or demand at local level (there was, for instance, no preference for a local management company or a local brand). (131)In light of the above considerations, the Commission concludes that, for the purposes of this Decision, the market for the provision of hotel management services is wider than local. (132)Then, in order to determine whether the market for the provision of hotel management services is national or wider than national, in particular at least EEA-wide, the Commission has assessed the homogeneity of the conditions of competition across the EEA. (133)The general question of the market investigation questionnaires on whether the conditions of competition on the market for the supply of hotel management services are homogeneous in the EEA triggered divided opinions. Most hotel chains having expressed a view consider that the conditions of competition are homogeneous. On the contrary, most hotel owners and white label managers having expressed a view consider that the conditions of competition are significantly different between EEA countries. (134)The Commission will therefore rely for its assessment on different factors that, in line with the Commission Notice on the definition of the relevant market, should be taken into account for the definition of the geographic scope of the market for the provision of hotel management services. 4.3.2.3.1Distribution of market shares between the Parties and their competitors (135)The Commission notes that the Parties' market shares vary significantly from one EEA country to another and that the competitive landscape shows certain differences, notably with the presence of national players in some countries. The differences in the Parties' and their competitors' market shares are confirmed by the market reconstruction undertaken by the Commission. (136)Nevertheless, the Commission considers that those national variations result mainly from the "weight of the past" rather than from heterogeneous conditions of competition. More particularly, the structure of the market for the provision of hotel management services seems to be inherited, at its early stage of development, from the structure of the market for hotel accommodation services, for the following two reasons. (137)First, hotel chains need to have demonstrated their capacity to successfully self-manage hotels before being able to compete successfully for the provision of hotel management services to third-party owners. Therefore, strong players on the market for hotel accommodation services in a certain country are likely to capitalise on their strength and grow into strong players on the market for the provision of hotel management services at national level, thus enjoying higher market shares in their domestic market before expanding to other markets. (138)Second, the market for the provision of hotel management services results, at least partly, from the development of an asset-light business model in the hotel industry and the trend towards the divestiture by hotel chains of the assets they own. Since a hotel chain that engages in the divestiture of the hotels it owns is likely to continue, at least initially, managing its divested hotels, the heterogeneous presence of a hotel chain throughout the EEA, and a strong domestic market share, may simply derive from the heterogeneous geographic distribution of its hotels. 4.3.2.3.2Pricing and basic demand characteristics (139)First, Marriott's pricing and contracting practices are broadly similar across the EEA. Starwood's pricing and contracting practices are consistent not only across the EEA States, but also across the broader Europe, Africa and Middle East region and worldwide. (140)Importantly, most respondents to the market investigation questionnaires having expressed a view consider that the types of services requested by hotel owners under management agreements and the level of management fees do not vary significantly from one EEA country to another. (141)In addition, respondents mentioning hotel owners' possible national preferences acknowledge that those preferences would have an effect on (i) the level of expertise required from hotel management services rather than on their place of establishment, and (ii) the focus of the management services to be provided rather their nature. Therefore, any national preferences would not lead to the differentiation of the hotel management services and of the key provisions of the management agreements between EEA countries. (142)The Commission therefore considers that prices and demanded services are homogeneous throughout the EEA. 4.3.2.3.3Possible barriers to entry or expansion in national markets (143)Respondents to the market investigation questionnaires indicate that the following elements may impact the level of homogeneity of the conditions of competition of the market for the supply of hotel management services in the EEA: (i) the absence of a single law governing hotel management agreements; (ii) the degree of uptake by hotel owners of an externalised hotel management model.

(144)However, the Commission does not consider that those elements constitute barriers isolating the different national markets in the EEA. Indeed, the different applicable legal systems may render the provision of hotel management services across the EEA more complex and costly than if a uniform EEA legal system existed. They may therefore have an effect on the attractiveness of entry or expansion in certain markets. However, they do not constitute regulatory barriers that could not be overcome by hotel chains, especially those that already self-manage hotels throughout the EEA and, consequently, could manage hotels for third-party owners without facing any further legal or administrative requirement. (145)As to the degree of uptake by hotel owners of externalised management services, it equates to the degree of maturity of the market for the provision of hotel management services in different countries, which may explain the variations in the proportion of rooms managed by hotel chains (compared to the total number of rooms owned by owners unrelated to hotel chains). This nevertheless does not delineate different markets, since the relative size of the market for the provision of management services in a certain country has no impact on the conditions of competition for the award of the corresponding management agreements. As an example, in Germany (one of the countries with low penetration of hotel management services according to a response to the market investigation), the Commission notes that hotel chains headquartered in other EEA countries or in the USA, such as the Parties, IHG, Hilton, Groupe du Louvre, Accor, do provide hotel management services and hold market shares that are comparable and even higher than those headquartered in Germany, such as Steigenberger and TUI. (146)Besides, initially region-focused chains or white label management companies (e.g. Westmont Hospitality Group, Interstate Management Services or Scandinavian Hospitality Management) expanded their presence across the EEA or worldwide. (147)In view of the above, and considering all evidence available to the Commission with regard to (i) the pricing of hotel management services, (ii) the characteristics of the demand in management services, and (iii) the profile of companies competing for the management of the most attractive properties throughout the EEA, the Commission considers that the national discrepancies in the conditions of competition between EEA countries are not significant enough to question their overall homogeneity across the EEA. (148)Moreover, most large hotel chains having responded to the market investigation questionnaires consider that they compete with each other for the provision of hotel management services at worldwide level. (149)There are therefore indications that the market for the provision of hotel management services is likely to be at least EEA-wide and even worldwide. However, for the purpose of this Decision, the question of whether it is EEA-wide or worldwide can be left open because the assessment of the Transaction would not lead to any competition concerns under either market definition. 4.3.2.4Conclusion (150)In view of the above, and considering all evidence available to the Commission, the Commission considers that, for the purpose of this Decision, the market for the provision of hotel management services is at least EEA-wide. (151)The Commission will assess the effects of the Transaction at both EEA- and worldwide levels. 4.3.3Hotel franchising services 4.3.3.1Commission's practice (152)The Commission has in its prior decision considered that the market for hotel franchising services presents supra-national characteristics, ultimately however leaving the exact market definition open. 4.3.3.2Marriott's views (153)Marriott submits that any market for the provision of hotel franchising services would be worldwide and provides examples of brands from Marriott, Starwood and competitors that are franchised on a global basis. (154)Marriott acknowledges that there are differences in shares by hotel brands from country to country. Nevertheless, it argues that those differences are due to the time needed to expand a hotel brand across the world in an intensely competitive marketplace. (155)In addition, Marriott considers that the most fundamental aspects of the competition conditions on a potential market for the provision of hotel management services are broadly similar at a worldwide level. There is a global demand for the provision of hotel franchising services. The types of services offered under a franchise agreement and its main terms and conditions, including franchise fees, are broadly similar across the globe. 4.3.3.3Commission's assessment (156)To obtain the general views of market participants on the plausible geographic markets for the provision of hotel franchising services, the Commission asked the Parties' competitors as well as hotel owners and white label management companies to identify the geographic area on which hotel franchisors primarily compete with each other for hotel franchising, in terms of (i) brand awareness (i.e. area where the competitors' brands are known), and (ii) presence (area where competitors have a hotel already operating under their brands). (157)The majority of respondents indicate that hotel franchisors compete with other franchisors whose brands are known world-wide, followed by those considering that "it depends". The opinions of respondents were divided as to whether hotel franchisors also compete with each other, in terms of brand awareness, in other geographic areas. (158)There was no consensus on whether hotel franchisors compete with each other based on their presence on certain geographic area, as the majority of respondents answered that "it depends", followed by those – predominantly hotel chains – considering that they compete with other franchisors having a world-wide network of hotels operating under their brands, and those considering that they compete with franchisors having a hotel operating under their brands in the specific location in which the hotel to be franchised is located. Finally, the responses are also divided as to whether hotel franchisors also compete with each other for hotel franchising, in other geographic areas in terms of presence.

(159)First, with regard to the plausibility of a local market, the Commission is of the view that the respondents having taken the view that hotel franchisors primarily compete locally for hotel franchising explain their choice by reference to a different market, i.e. the market for hotel accommodation services. (160)However, no hotel owner established any correlation between the scope of the competition on the market for hotel accommodation services and the scope of the competition on the market for the provision of hotel franchising services. In particular, no hotel owner mentioned that the market for the provision of hotel franchising services was characterised by differences in price or demand at local level (there was, for instance, no preference for a local brand). (161)In light of the above considerations, the Commission concludes that, for the purposes of this Decision, the market for the provision of hotel franchising services is wider than local. (162)Second, in order to determine whether the market for the provision of hotel franchising services is national or wider than national, in particular at least EEA-wide, the Commission has assessed the homogeneity of the conditions of competition across the EEA. (163)The general question in the market investigation questionnaires on whether the conditions of competition on the hotel franchising market are homogeneous in the EEA triggered divided opinions. Most hotel chains having expressed a view consider that the conditions of competition are homogeneous. On the contrary, most hotel owners and white label managers having expressed a view consider that the conditions of competition are significantly different between EEA countries. (164)The Commission will therefore rely for its assessment on different factors that, in line with the Commission Notice on the definition of the relevant market, should be taken into account for the definition of the geographic scope of the market for the provision of hotel management services. 4.3.3.3.1Distribution of market shares between the Parties and their competitors (165)As acknowledged by Marriott, the market shares of the Parties vary significantly from one EEA country to another. The competitive landscape shows certain differences, notably with the presence of national players in some countries. The differences in the Parties' and their competitors' market shares are confirmed by the market reconstruction undertaken by the Commission. (166)Nevertheless, the Commission considers that those national variations result mainly from the "weight of the past" rather than from heterogeneous conditions of competition. More particularly, the structure of the market for the provision of hotel franchising seems to be inherited, at its early stage of development, from the structure of the market for hotel accommodation services. (167)Indeed, the success of a hotel chain as a franchisor depends on recognition of its brands, which itself depends on its history and success as a provider of hotel accommodation services. Therefore, strong players on the market for hotel accommodation services in a certain country are likely to capitalise on their strength and grow into strong players on the market for the provision of hotel franchising services at national level, thus enjoying higher market shares in their domestic market before expanding to other markets. This would for example explain why, according to the results of the market reconstruction, a French group (Accor) and a British group (IHG) are strong market leaders for the provision of hotel franchising services in respectively France and the United Kingdom. 4.3.3.3.2Pricing and basic demand characteristics (168)First, Marriott's pricing and contracting practices are broadly similar across the EEA. Starwood's pricing and contracting practices are consistent not only across the EEA States, but also across the broader Europe, Africa and Middle East region and worldwide. (169)Importantly, most respondents to the market investigation questionnaires having expressed a view consider that the types of services requested by hotel owners under management agreements and the level of management fees do not vary significantly from one EEA country to another. (170)The Commission takes the view that the overall homogeneity in prices across the EEA is compatible with possible variations in the fees charged by a hotel chain for the franchising of a given brand in different countries. Indeed, responses to the market investigation questionnaires indicate that those variations would be brand-specific and would not pertain to structural differences in the market for the provision of hotel franchising services at national level. (171)The Commission therefore considers that prices and demanded services are homogeneous throughout the EEA. 4.3.3.3.3Possible barriers to entry or expansion in national markets (172)Respondents to the market investigation questionnaires indicate that the following elements may impact the level of homogeneity of the conditions of competition of the market for the supply of hotel franchising services in the EEA: (i) the absence of a single law governing hotel management agreements; and (ii) varying degrees of penetration of the franchising operating model. (173)However, the Commission does not consider that those elements constitute barriers isolating the different national markets in the EEA. Indeed, the different applicable legal systems may render the provision of hotel franchising services across the EEA more complex and costly than if a uniform EEA legal system existed. They may therefore have an effect on the attractiveness of entry or expansion in certain markets. However, they do not constitute regulatory barriers that could not be overcome by hotel chains, especially those that already manage hotels (under their own brands) throughout the EEA and, consequently, could franchise brands to third-party owners / managers without facing any further legal or administrative requirement. (174)As to the degree of maturity of the market for the provision of hotel franchising services in different countries, it does not delineate different markets, since the relative size of the market for the provision of hotel franchising services in a certain country has no impact on the conditions of competition for the award of the corresponding franchise agreements. As an example, according to the market reconstruction, the same hotel chain (the French group Accor) is the market leader in the provision of hotel franchising services in France and Germany, while there are also strong German hotel brands (e.g. Steigenberger) and the level of market uptake of hotel franchising is, according to the market investigation, high in both countries.

(175)Besides, some brands (e.g. MOXY) have expanded their presence across the EEA or worldwide. (176)In view of the above, and considering all evidence available to the Commission with regard to (i) the pricing of hotel franchising services, (ii) the characteristics of the demand in franchising services, and (iii) the profile of companies competing for the branding of the most attractive properties throughout the EEA, the Commission considers that the national discrepancies in the conditions of competition between EEA countries are not significant enough to question their overall homogeneity across the EEA. (177)Moreover, most large hotel chains having responded to the market investigation questionnaires consider that they compete with each other for the provision of hotel franchising services mainly at worldwide level. (178)There are therefore indications that the market for the provision of hotel franchising services is likely to be wider than EEA-wide and even worldwide. However, for the purpose of this Decision, the question of whether it is EEA-wide or worldwide can be left open because the assessment of the Transaction would not lead to any competition concerns under either market definition. 4.3.3.4Conclusion (179)In view of the above, and considering all evidence available to the Commission, the Commission considers that, for the purpose of this Decision, the market for the provision of hotel franchising services is at least EEA-wide. (180)The Commission will assess the effects on the Transaction at both EEA- and worldwide levels. 5COMPETITIVE ASSESSMENT 5.1Introduction (181)Under Article 2(2) and (3) of the Merger Regulation, the Commission must assess whether a proposed concentration would significantly impede effective competition in the internal market or in a substantial part of it. In making this appraisal, where the Commission finds that a notified concentration falling within the scope of the Merger Regulation does not raise serious doubts as to its compatibility with the internal market, it shall decide not to oppose it and shall declare it compatible with the internal market. (182)According to the Commission's Horizontal Merger Guidelines concentrations may significantly impede effective competition, in particular by creating or strengthening a dominant position by eliminating important competitive constraints on one or more firms, which consequently would have increased market power, without resorting to coordinated behaviour (non-coordinated effects). (183)The assessment of the compatibility of the Transaction with the internal market will focus on non-coordinated horizontal effects in the markets for hotel accommodation where the Parties' activities overlap (Section 5.2), as well as on the markets for hotel management services (Section 5.3), and hotel franchising services (Section 5.4). (184)The Horizontal Merger Guidelines set out a number of factors that the Commission applies when assessing whether a notified concentration will give rise to horizontal non-coordinated effects. To reach the conclusion that a notified concentration is likely to lead to such effects, not all of those factors need to be present. Moreover, those factors are not exhaustive. 5.2The markets for hotel accommodation services 5.2.1Methodology for the estimation of market shares on markets for hotel accommodation services (185)Generally, a merger giving rise to non-coordinated effects would significantly impede effective competition by creating or strengthening the dominant position of a single firm, one which, typically, would have an appreciably larger market share than the next competitor post-merger. According to well-established case law, very large market shares – 50 % or more – may in themselves be evidence of the existence of a dominant market position. (186)As indicated in Section 4.1, the Parties are active on the market for hotel accommodation services through owned or leased, managed and franchised hotels. 5.2.1.1Inclusion of managed hotels in the calculation of market shares (187)In its prior practice, the Commission has considered that the provision of hotel management services to a hotel owner on a contractual basis may lead to a situation of joint control over the hotel by the hotel owner and the hotel manager. (188)Marriott submits that the Parties usually enter into standardised management contracts, which provide that they are engaged to supervise, direct and control the operation of the respective hotel with the aim to achieve long-term profitability while maintaining brand standards. Marriott or Starwood in their function as hotel managers are granted a broad authority by the hotel owner to control all major aspects of the operation of the hotel, including setting rates, collection of revenues, preparation of books and financial reporting, and performance of repairs and maintenance. Managerial discretion is subject to the review or approval by the owner in certain major areas, such as the annual operating and capital expenditure budgets.

(189)According to the management contracts, the performance and compensation of Marriott or Starwood as hotel managers are determined on the basis of the performance of the managed hotel and not on the basis of Marriott’s or Starwood's overall performance. The Parties' management fees consist of a percentage of the hotel's gross annual revenues and a percentage of the hotel's annual operating profit. The management contracts the Parties enter into have a typical duration of […] years. (190)The majority of competitors and hotel owners and managers responding to the market investigation also describe hotel management contracts as hotel-specific, providing for the use of centralised services and systems for the operation of the managed hotel, the manager's basic and incentive fees, the rights and obligations of each side, e.g. in relation to maintenance, performance, the control exerted by the owner, etc., a long duration of typically 10 to 20 years and the conditions for termination. (191)Hotel managers thus appear to have a determining role on the operation of managed hotels and the development and implementation of its business strategy. As a result, Marriott and Starwood in their function as hotel managers also exert significant influence over the hotels they manage. (192)Therefore, the Commission concludes that managed hotels are most likely jointly controlled by Marriott or Starwood. Therefore, managed hotels have been included in the calculation of the Parties' market shares in EEA markets, as more accurately reflecting their relative market position. 5.2.1.2Non-inclusion of franchised hotels in the calculation of market shares (193)According to the Consolidated Jurisdictional Notice, "franchising agreements as such do not normally confer control over the franchisee's business on the franchisor". The Commission has looked into hotel franchising in prior cases, ultimately however leaving open whether franchised hotels should be added to the calculation of the franchisors' market shares. (194)Marriott submits that, with some negotiated variations and adjustments for brand-specific differences, the Parties enter into standardised agreements with their franchisees. Through these agreements, franchisees acquire access to, respectively, the Marriott or Starwood brand names, trademarks and operating systems in return for a fee and on condition that they respect certain minimum brand standards. The franchisee is responsible for the day-to-day operation of the hotel, for significant strategic decisions, including price setting, budget and business plan, for the staffing, maintenance and investments of the hotel. (195)Contrary to managed hotels, Marriott and Starwood in their function as hotel franchisors do not have decision-making authority in relation to the operation of the hotel. Against the background of ensuring that brand standards and the brand reputation are respected, franchisors have specific rights, such as the right to approve the hotel manager, material hotel renovations or change of ownership of the hotel. For their franchising services, the Parties are typically remunerated through a franchise application fee, a royalty fee, depending on the hotel's gross sales, and ancillary fees that cover miscellaneous expenses, such as the cost of the on-line reservations platform and above property sales and marketing costs. The average duration of the Parties' franchise contracts is […] years. (196)The majority of competitors and hotel owners and managers responding to the market investigation also indicate that the key terms of hotel franchise contracts consist in the brand designation and brand standards, the determination of franchisor's fees, the rights and obligations of each side, e.g. franchisor's audits to ensure brand standards, services to be provided by the franchisor, performance measures, a duration of typically at least 10 years and the conditions for termination. (197)The majority of managers of franchised hotels responding to the market investigation indicate that the pricing strategy of the hotel is decided at the level of the hotel by them as hotel managers. Similarly, hotel chain operators, corporate customers and travel agents and tour operators replying to the market investigation differentiate between managed and franchised hotels, specifying that in the case of franchised hotels decisions on pricing are taken at hotel level and not centrally by the hotel chain. (198)The Commission concludes on the basis of the market investigation results that the franchised hotels are operated independently by their hotel managers and not centrally by the hotel chain itself. The Parties' franchised hotels are therefore competing with other Marriott or Starwood hotels having a different manager on the same market. This is also confirmed when looking into franchised hotels competitive sets, as Marriott and Starwood hotels are included in the competitive sets of Marriott and Starwood franchised hotels respectively. (199)In light of the above considerations, Marriott and Starwood do not have a determining role on the operation of their franchised hotels and the development and implementation of the latter's business strategy. As a result, the Parties, in their function as hotel franchisors, do not control their franchised hotels, which are instead operated by their respective hotel owner and/or manager and are thus in competition with other hotels of the same chain. Therefore, Marriott and Starwood's franchised hotels have not been included in the calculation of the Parties' market shares in EEA markets, as this would not accurately reflect their relative market position. 5.2.1.3Calculation of market shares (200)Marriott submits that there are no reliable objective reports allowing it to provide market share data on the basis of occupancy, i.e. sold room nights. Therefore, it relied for the estimation of market shares on the various markets on room capacity, metric that is also widely-used in the industry. For that purpose, Marriott has used the STR database, which provides information on the hotels operating in the EEA, their ownership and room capacity. (201)Marriott submits that the estimated market shares of the Parties are likely overstated based on that methodology, as the STR database does not include information on all independent hotels operating in the EEA. In addition, Marriott was not able to identify the star-rating of approximately 25% of all hotels in the EEA. These hotels were therefore not taken into account, when estimating the Parties' market shares on markets segmented by star-rating. Moreover, the Parties' serviced apartments and residential offerings have been taken into account for the estimation of Marriott and Starwood's market shares; however, serviced apartments and residential offerings not operated by the Parties were not taken into account for the estimation of the various markets' size. Last, Marriott submits that a portion of the customer base is turning to non-traditional lodging providers such as Airbnb. Even though Marriott believes that these entities should be considered as competing with hotels for the provision of accommodation services, it has at this stage excluded non-traditional lodging providers from its calculation of market shares. (202)Moreover, Marriott has included in its estimation of market shares all known pipeline hotels scheduled to open until 30 June 2016. (203)In light of the above, the Commission concludes that the market data provided by Marriott suffice for assessing the impact of the Transaction on the EEA markets for hotel accommodation services. The inclusion of the Parties' pipeline managed hotels planned to start operating beyond that date would not change the assessment of the Transaction, as it would not lead to any additional affected markets and would not affect the conclusion as to the impact of the Transaction on those markets that are affected. 5.2.2Introduction on affected markets (204)There are approximately 3.9 million hotel rooms in the EEA according to the STR database. The 5 largest hotel companies on the basis of rooms provide about 15% of the total number of rooms in the EEA, even if the hotels of franchisees were attributed to the brand-parent. The largest hotel company in Europe, Accor, has just [5-10]% share of total hotel rooms, Best Western and IHG being the next largest with a share of just [0-5]%. Hotels operating under Marriott brands (with approximately […] rooms) and hotels operating under Starwood brands (with approximately […] rooms) supply just [0-5]% and [0-5]% of the rooms in the EEA, respectively. (205)Moreover, independent hotel operators have a strong presence in hotel accommodation services in the EEA, with a room market share of approximately 68%. Using the STR database, approximately 66% of both the 5-star hotels and the 4-star hotels in the EEA were operated as independent hotels in 2015.

(206) Table 1 below provides an overview of the Parties' individual and combined shares in the hotel accommodation services in each affected market at city and airport level. All hotels Vienna Marriott 4&5 stars [0-5]% 4 stars [0-5]% 5 stars [10-20]% Starwood 4&5 stars [0-5]% 4 stars - 5 stars [10-20]% Parties 4&5 stars [5-10]% 4 stars [0-5]% 5 stars [30-40]% Milan Marriott 4&5 stars [0-5]% 4 stars - 5 stars [0-5]% Starwood 4&5 stars [0-5]%