Recently, the issues concerning Price Parity was brought to the Competition of Commission of India (“CCI) in the matter titled as Rubtub Solutions Pvt. Ltd. versus MakeMyTrip India Pvt. Ltd. and Another, and a detailed decision was passed by the CCI on February 24, 2020.[1]
Case Brief
Rubtub Solutions Pvt. Ltd. (‘Informant’), a company operating under the brand name of Treebo Hotels is in the business of providing franchising services to budget hotels in India. Additionally, it provides service to numerous independent budget hotels who partner with it under its newly launched ‘Hotel Superhero’ scheme. Under this, Treebo only provides services such as hotel management technology services, listing on its platform and other online travel aggregators, credit facilities, support and quality control of the staff and hotel management resources etc. but not its brand name.
MakeMyTrip (MMT) is an Online Travel Agency (OTA) engaged in the business of providing travel and tourism related services in India. OYO on the other hand, provides budget accommodation to customers and is in the market for providing franchising services to budget hotels under its brand name ‘OYO’.
Allegations
a) MMT has abused its dominant position in the relevant market for online intermediation services for booking of hotels in India; greater market power due to its economic superiority w.r.t. other competitors; its vertical integration with OYO and the existence of high entry barriers given the network effects.
b) MMT imposed “price parity restriction” on Treebo hotels through a chain agreement that further restricted them from providing properties on Booking.com and Paytm at a better price.
Competition Commission of India – The matter was brought under Section 26(1)[2]which means the Commission has to determine whether there was a prima facie case for the direction to the Director General (DG) for further investigation. A case against MMT and OYO for entering into a vertical arrangement having an Appreciable Adverse Effect on Competition (AAEC) in the market was made out “prima facie”. It ordered a detailed probe against MMT and OYO for allegedly indulging in unfair business practices.
The issue of Price Parity in the Agreement –
The chain agreement entered between MMT and Treebo entails price parity as well as room parity condition. The agreement stated that neither can Treebo provide a better rate compared to competing online travel agencies nor can they provide rooms to online travel agency unless those rooms are first made available on the platform of MMT. Further, OTA also allegedly imposed an “exclusive condition” on Treebo through exclusivity agreement which restricted it from listing its properties on Booking.com and Paytm for 72 hours and 30 days, respectively, prior to check-in for hotels situated in certain cities which would ultimately cause deep losses to Treebo in the travel season and was hence restrictive in nature.
Price Parity
Also referred to as “Most Favored Nation (MFN)” clause, price parity clause aims to assure the downstream online platform that it has received goods or services by the supplier, at terms that are at least as favorable as those offered to any other buyers.[3]Simply put, it restricts service providers or sellers from offering their goods or services at lower prices on other platforms. It is contractually imposed so as to guarantee the lowest price for the platform itself. Price parity clauses, which require that retailers don’t offer better prices on other marketplace platforms and/or on their own website, are identified as potentially distortive.
Price Parity in the hotel industry
The online booking industry often faces flak for its dominant position and use of restrictive practices such as the price parity clauses themselves. The concept of price parity originated with the hotel industry where hotel chain franchisers entered into such agreements so as to prevent third parties from advertising lower rates than what they were offering. Subsequently, it became more frequent for Online Travel Agencies (OTAs) to use price parity while negotiating with hotels.
It is therefore a legal instrument entered into between OTAs and hotels with the purpose of the latter guaranteeing to use the same rate and terms for a specific type of room whatever the medium may be. This does not imply fixation of price indefinitely, it means that even when the prices change, it shall remain synonymous across all mediums, direct as well as indirect.
Types of Price Parity
In the context of the hotel bookings sector, a ‘wide’price parity clause would require a hotel to provide rooms to an online booking portal on terms at least as favourable as those offered on all other online and offline distribution channels. On the other hand, a ‘narrow’price parity clause would allow a hotel to offer better terms and prices to other online and offline sales channels but would prevent the hotel from advertising lower prices on their own website. However, both the types raise serious anti-competitive concerns.[4]
As per the study findings, online platforms in the service categories, i.e. online travel agencies and online food ordering & delivery platforms operating in India, typically include ‘wide’ parity provisions in their contracts with hotels and restaurants respectively. The rationale put forth by some platforms for stipulating such a clause was to ensure competitive price for consumers on their platform.
How is it Harmful
Price parity clause can certainly give rise to competition concerns. Firstly, since it gives rise to hike in commission, the existing platforms may not have sufficient incentive to compete. Secondly, a new platform may charge lower commissions to service providers that offered a discounted rate, in order to gain some footing in a market which is concentrated and where the present members enjoy scale economies and network effects.It may cause entry-barriers to new low-cost platforms. Thirdly, these clauses can also help cement coordination or tacit understanding that may exist between platforms, by disincentivising deviation from a consensus rate of commission. Thus, platform parity clauses can potentially lead to higher commission rates and discourage entry.
EU Competition Law
The competition enforcers in EU have viewed the legality of these clauses quite variably leading to legal uncertainty on the matter.
France and Italy
In 2017, the Italian government banned price parity clauses that are imposed by travel agencies on hotels in conjunction with its Article 1(166) of the Annual Competition Law.
In Europe, this was the first big step at the legislative level to explicitly prohibit the practice of price parity which are anti-competitive in nature.
Germany and the Booking.com case
The German competition authority in 2013 began to investigate online booking platforms - Expedia and Booking.com. The investigation was regarding their use of the ‘best-price’ clauses with hotels in their respective contracts. In 2014, they banned Booking.com from including ‘narrow’ price parity clauses in its contracts with hotels in Germany. The platform appealed successfully against this decision. The Court held that the decision on the ban was overturned on the basis of a hotel and customer survey. It said that ‘narrow’ provisions are compatible with antitrust law and do not restrict competition and indeed are necessary to ensure a fair and balanced relationship between platform operators like Booking.com and contracting hotels. They were exempted under Article 102(3) of the TFEU with the justification that such clauses even prevent hotels from taking an unfair advantage of the publicity that comes with being listed on an online booking portal while at the same time ensuring that transactions ultimately take place on their own websites, where the prices are lower (such behavior was described as improper redirection of customer bookings).[5]
Thus, with no intervention or recognition by any international body, the price parity clause remains a mystery in the EU with each country coming to its own conclusions with the help of National Competition Authorities (NCAs).
Indian Scenario
Although price parity clauses do not find themselves in the wording of the Act, they can be examined by the Commission under section 3(4) of the Act, in a rule of reason framework. It can be justified with the help of factors that are enumerated in section 19(3) of the Act allowing the Commission to assess harm to competition arising from platform price parity. Further, if the platform imposing the parity restriction is found to be an enterprise dominant in a relevant market, the conduct can be examined under section 4 of the Act.
In Conclusion - CCI’s Positive Response
In its report on ‘Market Study on E-commerce in India’[6], the CCI noted some benefits of platform price parity. Platforms invest in making their webpages user-friendly and in improving search and comparison functionalities. Absent a price parity restriction, a service provider may take the advantage of these features of a superior quality platform to draw customer attention to its product and then sell the product through its website or another platform at a lower price. This may lead to consumers searching and comparing on qualitatively superior platforms and making the transaction on another platform or on the service providers’ own website where they are charged the lowest price. If a large number of service providers and consumers act in this fashion, the platform may factor in the same and lose incentive to invest in superior features. Thus, in absence of price parity restriction, competition on non-price parameters may be harmed in certain circumstances.
[1]Case no. 1 of 2020, Competition Commission of India. [2]The Competition Act, 2002, access here. [3]Ariel Ezrachi, The Competitive Effects of Parity Clauses on Online Commerce,pp. 488-519, European Competition Journal, vol. 11(2-3) 2015. [4]Market Study on E-Commerce in India, Key Findings and Observations, January 2020. Findhere. [5]Booking.com v. HRS-Hotel Reservation Service Robert Ragge GmbH and anr.,B 9-121/13. [6]Market Study on E-Commerce in India, Key Findings and Observations, January 2020. Find here.
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