Old friends in new frocks? MFN clauses in the online hotel booking sector/6

(Previous installments here) 

Allegedly, between the investigated parties there is a “traditional” RPM clause in place, providing that the hotels would establish the room-only rate. Booking.com and Expedia are obliged to use the published rates when offering the hotels' rooms to consumers. Basically, what the former British competition agency declined to analyse was the related restrictive clause in the agreement between hotels and OTAs, i.e. the hotels' obligation that the published rates offered by Booking.com and Expedia would be as favourable as the rates offered to any competing OTA and the rates operated by the hotels themselves.

Tentatively, one of reasons explaining the OFT’s focus on the vertical price fixing element of the investigated practices could be that retail-price MFN clauses stand for largely uncharted terrain, both in economic and legal terms. Another, more consequential reason could be that the effective operation of a retail-price MFN under certain circumstances is predicated on the ability of the supplier, here the hotel, to control prices. If an OTA imposes a retail-price MFN clause on a hotel, the latter has to make sure that the “favoured” OTA is not undercut by the latter's competitors, or otherwise match the lower retail-price. The hotel may  then be willing to resort to minimum resale prices with a view to ensuring that nobody offers lower room-only rates than the ones displayed on the website of the OTA imposing the retail-price MFN clause. In this case, it would be the retail-price MFN that leads to RPM.

An important consequence of the “MFN explanation” for the operation of RPM is that it might become even more difficult to rationalize (and exempt) the latter by pointing to commonly alleged efficiency reasons, such as safeguarding retailers (here, OTAs) against free-riding. Moreover, this would mean that only when the possibility of “transmission” between the retail-price MFN clause and RPM is explicitly ruled out, it would perhaps make sense to focus exclusively on the latter. Conversely, when it can be demonstrated that, in the context of a specific case, RPM provides a mechanism to ensure the effective operation of a retail-price MFN clause, the question arises whether efficiency benefits exempting the latter could also redeem RPM’s “own” anticompetitive effects.

Admittedly, this and a number of equally important questions are difficult to answer, at least for the time being. For once, the potential efficiency explanations for retail-price MFNs are still to be thoroughly analysed. Recently, economists writing in support of Apple’s appeal against a US District Court’s ruling finding that Apple and some book publishers had conspired to raise the prices of e-books, maintained that the MFN clause, a crucial element of the alleged conspiracy, under certain circumstances can facilitate entry.