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Travel Tip: Agency vs. Merchant Model for Online Hotel Booking

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Have you ever wondered how those online travel agencies work? Well, there are two types of models when it comes to online hotel bookings.

The setup most of us are familiar with is the merchant model. Online travel agencies like Hotels.com, Orbitz and Travelocity contract with hotels to get a block of rooms at a negotiated wholesale rate. Then they mark the price back up and resell it to customers. And you, the traveler, have to pay for that room upfront.

Why would hotels allow this? Because they get more visibility and therefore more business. But it’s also cutting into the hotel’s own profits.

So we’re starting to see something called agency model. That means the online travel agency simply gets a commission from the hotel. The benefit is you have the option to pay at checkout, not when you book.

Booking.com uses this model, and Expedia has tested it out with the Expedia Traveler Preference program.

The online agents make less this way, but—no surprise here—customers tend to appreciate having a choice, so chances are you’re going to see this option more often.

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