Old friends in new frocks? MFN clauses in the online hotel booking sector/16

(Previous installments here)

The danger of anticompetitive foreclosure just mentioned should deserve a high level of attention by competition policy enforcers dealing with these and other practices involving online platforms. In fact, the successful market entry and expansion of this type of Internet entrepreneurs critically depend on their ability to attract two sufficiently sizeable groups of customers.

Thus, for instance, when an online booking platform finds the means to win both a critical mass of hotels willing to offer their rooms and a critical mass of hotel customers wanting to book them, the platform “ignites,” in the sense that indirect network externalities enable it to grow further. Conversely, if critical mass is not achieved, the platform starts contracting and eventually “implodes.”

When multi-sided platforms use web-native vertical restraints such as retail price MFN clauses, and also more traditional ones like for example various forms of exclusivity, a key concern for competition policy enforcers should be to investigate whether such restraints might prevent rivals from achieving critical mass on any side of the platform. Thus, with regard to retail price MFNs in the online hotel booking sector, there can be hardly any doubt that these clauses are particularly effective in hampering an entrant platform’s strategy to swiftly achieve critical mass on the hotel customers’ side by displaying lower hotel room rates.

(To be continued).

Algorithms and competition

M. Vestager, here . Large friendly letters? "It's true that the idea of automated systems getting together and reaching a...