The EU’s General Court Grounds Booking’s Flight Ambitions, Upholding the EC Decision to Block the Acquisition of ETraveli

Summary

The EU's General Court (GC) recently upheld (Judgment[1]) the European Commission's (EC) prohibition[2] of Booking Holdings Inc. (Booking) acquisition of the ETraveli Group (Etraveli) (the Booking Case). The case has drawn global attention due to the EC's first merger prohibition relying on a novel "ecosystem" or "entrenchment" theory of harm. The conglomerate-like theory underlying the prohibition - in the absence of any meaningful horizontal/vertical links - as pursued by the EC, and upheld by the GC was - and remains - controversial, not least as it will set the EU at odds with US and UK antitrust enforcement.

Indeed, the US FTC and the UK's CMA reviewed and unconditionally cleared the Booking Case. The EC, however, prohibited the Transaction on the basis that it would entrench Booking's existing dominant position in the hotel online travel agency (Hotel OTA) market. It reasoned, inter alia, that Booking would be acquiring an important customer acquisition channel that would make its dominant Hotel OTA platform even more attractive for consumers. This in turn would reinforce the network effects at play and make it harder for Booking's competitors to compete on the Hotel OTA market where Booking already enjoyed a dominant position. The GC rejected Booking's appeal and upheld the EC's Prohibition Decision. The Judgment deserves critical scrutiny: It upholds a novel and questionable theory of harm where there were no overlaps or vertical links and deepens a growing divergence between the EU and the US (and broader global) merger enforcement (which had cleared the transaction), and creates significant uncertainty and unpredictability for future transactions, especially in the digital space.

In particular, the Judgment raises concerns on several fronts:

• A questionable non-horizontal theory of harm. The Judgment upholds the first-ever prohibition grounded in a novel non-horizontal "ecosystem/entrenchment" theory of harm. The EC blocked the deal not because Booking was acquiring a direct competitor, but because it was adding a complementary flight online travel agency (Flight OTA) to its portfolio, which would allegedly entrench Booking's dominant position on the market for Hotel OTAs. This sets a concerning precedent: A dominant firm can now be prevented from acquiring a business in a neighbouring market even where there is no overlap at all.
  
  
• Divergence with the US and global enforcement. The Transaction was cleared unconditionally by the US FTC and the UK's CMA. The EC's prohibition, and its endorsement by the GC, starkly illustrates the widening gap between US and EU merger enforcement, particularly in digital markets, a rift already deepening as the EU regulates large digital platforms under the DMA. The case has shades of the GE/Honeywell (2001) transaction: The US cleared that deal, but the EC blocked it based on a (then somewhat unusual) conglomerate theory of harm[3]. It also places the EU out of step with broader global trends where competition authorities are more circumspect about blocking deals on non-horizontal theories of harm.
  
  
• Uncertainty and unpredictability going forward. The GC confirmed that the EC is not constrained by the theories of harm set out in its merger guidelines and can develop novel theories, especially for digital platforms. This gives the EC a broad mandate to develop further theories, and future transactions that do not fit neatly within its existing guidance may face a challenge on theories that have yet to be articulated. As a result, businesses and their advisors are left with little predictability while evaluating potential transactions by a dominant undertaking, particularly if it is a dominant digital platform acquiring a complementary business.

Booking has indicated it may appeal this Judgment[4]. A statement by the Court of Justice of the EU (ECJ) on the entrenchment theory of harm will be welcomed, not least because the EC has already included entrenchment in its draft merger guidelines[5], expected by Q4 2026.

Background - the EC decision

The Transaction was notified to the EC in October 2022[6]. The EC prohibited the Transaction, concluding that the Transaction would allow Booking to "strengthen its dominant position on the hotel OTA market"[7] and develop a "travel ecosystem attracting end customers earlier on in their trip planning process."[8] Notably, Booking and Etraveli did not compete head-on at the time of the Transaction - Etraveli is a Flight OTA, not a Hotel OTA - so there was no existing horizontal overlap or vertical links between the parties' businesses[9]. Instead, the [0-5]% figure[10] represented the EC's projected increment to Booking's future Hotel OTA market share[11]. Yet the EC (and, on appeal, the GC) found this projected, modest increment, along with qualitative factors, as sufficient to give rise to competition concerns given the entrenchment and network effects at play.

What is the Ecosystem theory of harm? The EC relied on an "ecosystem" theory of harm - reasoning that: (1) Booking, with market shares in excess of 60%, enjoys a dominant position on the market for Hotel OTAs; and (2) the Transaction would allow Booking to "entrench" its dominant position as:

• it would acquire an important traffic generating and customer acquisition channel because Flight OTAs are typically the first step towards consumers planning a trip and generate significant traffic;
  
  
• it could cross-sell its Hotel OTA services with the Flight OTA services, and this would mean more customers use Booking.com, which in turn makes it more attractive to consumers, and therefore more attractive to other hotels to be on its platform (i.e., "network effects");
  
  
• because of these factors, Booking's dominant position on the Hotel OTA market would be "entrenched" and competing Hotel OTAs will find it even more difficult to contest Booking's market position; and
  
  
• the further increased traffic to Booking's platform will increase barriers to entry and expansion on the Hotel OTA market.

How does the ecosystem differ from a traditional conglomerate theory of harm? Key differences to a traditional conglomerate theory of harm are:

• Direction of leveraging: A traditional conglomerate theory examines whether a firm leverages its dominant position in one market to foreclose competitors in a neighbouring market. Here, the EC found the reverse: Booking would leverage its position in the neighbouring (and non-dominant) Flight OTA market to entrench its already dominant position in the separate Hotel OTA market.
  
  
• Foreclosure: Traditional conglomerate/leveraging theories generally require the EC to show that the merger would allow the merged entity to foreclose rivals' access to inputs or customers. The EC's Prohibition Decision departed from it. The EC noted that "contrary to what the Notifying Party seems to suggest, in order to show foreclosure, there is no need to show that the market would 'tip' or that competitors would exit the market. It is sufficient that rivals' ability to access the market, or expand in it, is hampered[12]." The GC upheld the EC's position[13].

Behavioural remedies offered were considered insufficient. To remedy the concerns identified by the EC, Booking offered various behavioural remedies, including allowing travellers purchasing flight tickets to see multiple rival hotel offers from competing Hotel OTAs (i.e., functioning akin to a "choice" screen). This is notable because choice-screen style remedies have been accepted or endorsed by the EC in dominance cases: For example, in Microsoft (Tying) (2009), the EC accepted as a remedy an internet browser "choice screen" requiring Microsoft to let Windows users choose a web browser other than Internet Explorer[14].

The EC nevertheless rejected Booking's proposed remedy on its design and implementation. The EC found that these remedies did not adequately address the identified competition concerns because, inter alia, (a) they would be hosted by a Booking subsidiary - which has a "black box" algorithm and so would not effectively address transparency and non-discriminatory concerns - and (b) would be difficult to monitor effectively.

This is the first prohibition on the ecosystem theory, but not the first time the EC has considered it. Although the Booking transaction has garnered significant press[15] as the first blocked decision, the EC has been developing the ecosystem/entrenchment theory of harm for some time in transactions involving digital markets. For example, in Google/Fitbit (2020), the EC considered that by acquiring Fitbit, Google would gain access to Fitbit's database of user health and fitness data. This would entrench Google's position because it would increase the already significant amount of data that Google has for personalized ads, making it more difficult to match Google's services for "online search advertising, online display advertising, and the entire "ad-tech" ecosystem."[16]

The EC diverged from the US FTC and UK CMA. The case is also notable in that the EC diverged from other regulators that reviewed the same Transaction. The US FTC cleared the Transaction unconditionally, as did the UK's CMA. This is not the first time the EC has parted ways with US authorities on a conglomerate-style theory of harm: In GE/Honeywell (2001), the EC blocked a deal the US had cleared, reasoning that, inter alia, the transaction would let the merged entity leverage the parties' respective market power into one another's complementary products - the same leveraging logic, but applied in reverse in the Booking case. The CMA, among other points, considered a similar theory to the EC's - namely, whether the loss of Etraveli as a customer retention/acquisition channel for rival accommodation OTAs would raise barriers to entry and expansion in the UK accommodation OTA market - but reached the opposite conclusion[17].

The case before the GC

Booking appealed the Prohibition Decision and argued that (1) the EC had departed from its own guidance on conglomerate mergers by finding a new "reverse leveraging" theory of harm; (2) the incremental change in market shares was negligible and insufficient to raise competition concerns; and (3) Flight OTA was not necessary to compete on the Hotel OTA market and that its flight offering had a negligible impact on hotel room sales.

The GC's Judgment

The GC dismissed Booking's action for annulment in its entirety, upholding the EC's decision. It reasoned that: (1) The merger guidelines are not exhaustive: The Non-Horizontal Merger Guidelines set out a framework for the assessment of mergers and do not limit the EC from exercising its discretion while evaluating mergers, including in relation to digital platforms. They do not preclude a 'reverse leveraging'/entrenchment theory of harm; (2) While acknowledging that the EC's market share determination was vitiated with errors, the "actual impact of the transaction on the existing network effects on the hotel OTA market in favour of the applicant is likely to exceed what that modest percentage suggests."[18]; (3) Flights were an "entry point" and booked before hotels. The Transaction could potentially generate additional customer traffic for the Hotel OTA services as well as allow Booking to use a customer's data while booking a flight/planning a trip to offer targeted hotel booking options. These conclusions were based primarily on Booking's internal documents.

Conclusion

This Judgment upholds a novel and questionable non-horizontal "entrenchment" theory of harm, applied in this case despite there being no existing overlap between the parties' businesses. Booking has indicated it may appeal to the ECJ. Should that happen, and by the time the ECJ decides the case, the EC's Draft Merger Guidelines would however already be in force. As mentioned above, those guidelines incorporate an entrenchment theory of harm, so this theory is here to stay regardless of the outcome of any appeal.

The case also highlights the continued divergence between the EC and the US antitrust agencies. This divergence creates uncertainty, and parties cannot take comfort in an unconditional clearance in one jurisdiction because the deal can potentially be blocked in the other using a novel theory of harm. To reduce this risk, parties to a transaction, particularly if one is dominant, must identify transaction-specific efficiencies and benefits not just to the merging parties but also its consumers and be prepared to present a cogent case to the competition authorities early in the process.

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