(All Episodes here).
OFT’s investigation centred
on the arrangement restricting the online travel agents’ (OTAs) ability to discount “retail”
hotel rates to consumers. Expedia and Booking.com, in the context of the
proceedings, are described as being vertical distribution channels providing
hotel room booking services. More specifically, both Booking.com and Expedia
intermediate hotel accommodation bookings on a room-only basis, i.e. not as part of
a package including other travel products such as airline flights. Whereas
Booking.com operates under the same “commission based” model already analysed
by the German Competition Authority, Expedia utilises predominantly the “merchant
model.” Under this model, OTA’s revenue consists in the difference between the
‘net rate’ the OTA paid to the hotel and the room rate paid by the customer, either
at the moment the booking was made or upon check-out at the hotel. Expedia,
however, does not take title to the hotel rooms it offers.
Both Expedia and Booking.com
agreed to offer IHG’s hotel rooms at a rate set by the hotel group and not at a
lower rate, and the OFT provisionally indicated that the vertical price
agreement had as its object the prevention, restriction or distortion of
competition in breach of Article 101 TFEU. According to the British Competition
Authority, the arrangement restricts intra-brand price competition between the OTAs
and between the OTAs and the hotels’ direct online offerings via their own
websites, because OTAs cannot voluntarily sacrifice some of their commissions
or margins in order to offer discounted hotel rates to price sensitive consumers.
Moreover, due to the discounting restrictions, new entrants with potentially
more innovative or efficient business models are unable to display lower hotel rates
and, by doing that, achieve the scale necessary in order to establish
themselves and grow. Finally, the alleged anticompetitive effect is likely
to be amplified by the widespread adoption of similar discounting restrictions in
the market.
While the British investigation
focused on the alleged resale price maintenance, the OFT noted that vertical
agreements incorporating discount restrictions may also include a retail MFN
clause. As seen above, under the retail MFN provision it is the hotel that agrees
to offer its rooms via a specific platform at a booking rate which is no higher
than the rate displayed by other distribution channels. If the scope of the
obligation extends to all other distribution channels, both on- and offline,
including the hotel’s own website and physical desk, the effect is perfect “rate parity:” nowhere
the price sensitive and highly motivated consumer will be able to find a cheaper price than the one
displayed by the platform for that exact room. At first sight, however, a discounting restriction on top of a wide retail MFN clause would not make much sense. First of all, the
retail MFN clause would seem incompatible with Expedia’s “merchant model,” where
the booking rate is decided by the OTA itself and not by the hotel, alleged vertical price fixing aside. More importantly, under
the “commission based” model a platform is practically unable to sacrifice part
of the commission and obtain a cheaper rate from a hotel if that hotel has a binding, broad retail MFN in place with other distribution channels, because the price discount
will have to be extended to all these other distribution channels as well. If,
however, the provision has a much more limited scope, such as an “own-website
MFN” according to which the room rate made available on the platform will not be higher
than the price displayed on the hotel’s website, the discounting restriction would clearly affect "downstream" price competition between OTAs.
(To be continued).