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On 19 October 2022, the Competition Commission of India (the CCI) imposed heavy penalties[1] on MakeMyTrip India Private Limited (MMT) and Ibibo Group Private Limited (collectively, MMT-Go) and directed MMT-Go to, inter alia, modify its agreements with hotels to remove parity and exclusivity related obligations. Legitimacy of price parity clauses (also referred to as ‘best-price’ or ‘most favoured nation’ or MFN clauses) has been one of the highly debated ‘modern’ antitrust issues across many jurisdictions.

Whilst the MMT-Go case relates to contractual arrangements between online travel agents / hotel booking platforms (OTAs) and their hotel partners, the CCI order is likely to have wider application to other kinds of multi-sided platforms offering online intermediation services (especially those which allow transaction processing). The order may warrant a relook at the contractual terms involving parity obligations imposed by such platforms, including those agreed between OTAs and their hotel partners.

The context

Across platform parity clauses are a typical feature of contracts between OTAs and their hotel partners (individual as well as chain hotels). They can be either ‘wide’ or ‘narrow’ in their scope. While wide parity clauses prevent a hotel from offering better prices and terms on all other sales / distribution channels (including on the hotel’s own website and other OTAs), narrow parity clauses prevent the hotel from offering better prices and terms only on its own website.

In MMT-Go’s case, agreements with hotel partners included two types of wide parity obligations: (i) wide price parity – whereby hotels were not allowed to sell their rooms on any other OTA or on their own website at a price lower than what was being offered on MMT-Go’s platform; and (ii) wide room parity – whereby hotels could not refuse to provide rooms on MMT-Go’s platform at any given point of time if the rooms were being provided on any other OTA.

The other key allegations against MMT-Go pertained to the adoption of deep discounting practices and the imposition of exclusivity on hotels / hotel chains, denying them the opportunity to list their room inventory on competing OTAs during busy booking periods.

Price parity obligations 

The CCI rejected the market definition proposed by MMT-Go and assessed its market power / dominance in the market for online intermediation services for hotel bookings in India. The CCI was of the view that the parity clauses imposed by MMT-Go had adversely affected the relevant market because:

a. they reduced the incentive for other OTAs / potential entrants to compete by offering lower commission than that charged by MMT-Go. Even if other OTAs were to offer lower commission to hotels, the parity obligations imposed by MMT-Go would have prevented the hotels from offering them a list price for its inventory which was lower than what was offered to MMT-Go. This had resulted in softening of price competition between the OTAs (in terms of the commission as well as the ultimate prices to consumers).  

b. Given the lack of incentive or scope to compete on commission, OTAs were compelled to compete solely on discounts offered to end-consumers. The effect of the parity obligations imposed by MMT-Go, supposedly the dominant OTA, was that it was able to charge comparatively higher commission from hotels, which helped it to fund its comparatively higher discounts vis-à-vis other OTAs. This made it difficult for a new entrant or an existing player to establish an effective market presence.

c. There was a cascading effect of price and room parity obligations on the commission charged by OTAs, discounts offered to ultimate customers, and the final room prices. Due to MMT-Go offering highest discounts, MMT-Go could sell maximum room nights; hotels would end up paying the highest commission to MMT-Go for each room night sold, despite possibly having contracted a lower commission rate with other OTAs.

d. Parity obligations and exclusivity of listing prevented hotels from having independent yield management strategies for their time-sensitive inventories. On the one hand, hotels lost their freedom to set prices independently for different OTAs based on distinct commercial considerations, on the other hand, the increased sales by MMT-Go enabled it to unilaterally determine the commissions charged.

As regards the ‘deep discounting’ practice, the CCI observed that deep discounting may not raise any concerns. The practice may be justifiable if introduced to attract new customers or to bring a shift in consumer behaviour in a new market or by a new entrant to survive and sustain itself in a market. However, deep discounting could be problematic if such discounts are offered in combination with other anti-competitive / abusive conditions (such as parity obligations and exclusivity) by an entity having significant market power. The nature of discounts, the market, and the period for which such discounts are offered were also considered relevant factors for assessment. 

Limitation of potential justifications

The order has given some sense of what the CCI may or may not find palatable in terms of business justifications related to parity obligations:

  • While narrow price parity clauses may be justifiable on grounds of tackling the problem of ‘free-riding’ (to prevent hotels from unfairly benefitting from the investments made by an OTA in advertisement and promotion of the hotel, the so-called ‘hold-up’ problem), a wide price parity obligation (i.e. restriction in respect of all other sales / distribution channels) reduces competition between OTAs and may have an adverse impact on the prices charged to end-consumers. The free-riding problem cannot be an argument if an entity imposes parity and exclusive listing obligations and then offers deep discounts, thereby ensuring that a user eventually ‘books’ on its platform even if it compares with other platforms (vice versa is unlikely).  
  • Further, imposition of parity clauses cannot be justified as a ‘standard industry practice’ in the OTA market followed by most / all other OTAs, especially if they are imposed by a dominant OTA (as opposed to a smaller OTA), due to the potential adverse effects that it may have on competition as well as on trading partners (hotels).

The combination of wide price and room parity clause, exclusivity of listing, coupled with comparatively deeper discounts was considered anti-competitive and abusive by the CCI.

International experience

The CCI’s position on the anti-competitive nature of wide parity clauses appears to be in line with the view that has evolved in several other competition jurisdictions. Pursuant to multiple investigations conducted by European competition authorities, in 2015, and Expedia committed to swap out their wide party clauses for narrower parity clauses.[2]

However, European authorities maintain divergent views on whether narrow parity clauses also result in anti-competitive effects. Some European courts and regulators have opined that both narrow and wide parity clauses can adversely affect competition[3], but others hold that narrow parity clauses may be justified as they prevent free-riding, and there is a lack of evidence to show that narrow parity clauses harm competition in the market. [4]

Some countries like France,[5] Italy,[6] Austria[7] and Belgium[8] have introduced legislation banning the use of both wide and narrow parity clauses by platforms.

The thinking of the European Commission (the EC) seems to have also evolved over the years. The EC has recently clarified this in its revised Vertical Block Exemption Regulation (VBER) and the accompanying Guidelines on Vertical Restraints. While previously the VBER exempted all parity obligations (wide and narrow), wide parity clauses have now been removed from the ambit of the block exemption available under VBER (there is no exemption for wide parity clauses). The new VBER still exempts narrow parity obligations, except when the enterprise has market power above a certain threshold (and some other conditions).[9]

Implications for business

Although the CCI’s order needs to pass muster of the appeal process before the jurisprudence across platform parity / MFN clauses settles down in India, it does provide a good idea of the competition regulator’s  thinking on the scope and limitations around these frequently used commercial terms by multi-sided intermediation platforms (especially those facilitating transactions) that enjoy a significant market power. Some of the steps that such platforms (including OTAs) could take to avoid antitrust scrutiny are:  

  • Do a ‘collective’ assessment in the entire ecosystem: Successive CCI’s orders / investigations dealing with platforms (including the MMT-Go order) have indicated that in order to assess a clause or a contractual obligation (such as price parity, exclusivity, deep discounting), the CCI is likely to conduct a ‘collective’ assessment of the facts, other contractual terms, market dynamics and their impact on the entire ecosystem (upstream and downstream trading partners, competitors and end consumer), rather than looking at a particular obligation or practice in isolation. Therefore, multi-sided intermediation platforms having significant market share / power in a market or in a specific business segment should closely examine their contractual arrangements from a holistic perspective.
  • Reconsider wide parity obligations: With the above point in mind, platforms may consider revising their agreements with their upstream / downstream trading partners by removing parity obligations or replace any wide parity obligation (re price, availability or other terms) with a narrow one, so that they are not seen as restricting their trading partners’ ability to decide their own pricing, commission offered to a competing platforms and general business preferences. Having said that, depending on the market position, platforms may still be able to argue that a narrow parity obligation is reasonable to prevent potential free-riding / disintermediation risks by trading partners.
  • Re-examine ‘standard’ contract templates and ‘common’ business practices: The standard form digital ‘click-wrap agreement’ of platforms that a trading partner is required to ‘accept’ and other commercial terms should be carefully examined so as to ensure that trading partners are provided a reasonable degree of discretion over their offerings, including in respect of the level / range of discount that may be offered by platforms over and above the ‘sell rate’ or pricing notified by a trading partner.
  • Reconsider pricing / discounting practices: Unjustified deep discounts by a platform could adversely affect a trading partner’s brand image and goodwill, thereby reducing its competitive ability, especially if deep discounts are accompanied by other restrictive obligations such as across platform parity and exclusivity. Therefore, established / dominant platforms should re-work their discount calculations / strategies.
  • Avoid self-preferencing: If a platform (more particularly a dominant one) has any interest in / structural links with any trading partner (upstream or downstream), ensure that such trading partner is not given any preferential treatment in listing or access vis- à -vis its competitors.
  • Ensure objectivity in platform algorithms: Platforms should examine and ensure that their algorithms apply clear and ‘objective’ criteria for listing (placement, ranking and re-ranking etc.), filtering or excluding a particular offering. Algorithms should be trading partner / seller agnostic and should be based on customer-backward and not platform backward criteria. Such criteria are disclosed and applied in a transparent manner. Mere listing / presence on the platform is not sufficient, platforms need to ensure visibility of trading partners’ offerings on an objective basis.

The MMT-Go order does not imply that obligations such as across platform parity will necessarily result in an adverse impact on competition and, therefore, must be withdrawn by all platforms (including OTAs) in all circumstances. Antitrust risks do increase in proportion to the market power of the platform (and of trading partners in certain circumstances), but platforms which may not be dominant as of now should also be mindful of the above points as market power in case of digital / platform businesses can be extremely dynamic!

[1] Case No. 14 of 2019, Order dated 19 October 2022. The CCI imposed a monetary penalty of INR 223.48 crores (around USD 26 million) on MMT-Go and INR 168.88 crores (around USD 20.29 million).

[2] Market study on the distribution of hotel accommodation in the EU, COMP/2020/OP/002 (available here); Such commitments were accepted by the French, Italian, Swedish, Czech, Irish and UK competition authorities.

[3] Press Release No 099/2021 published by the Bundesgerichtshof (Federal Court of Justice) (available here).

[4] Decision of the Court of Appeal (Svea Hovratt), 9 May 2019, PMT 7779-18.

[5] Law No. 2015-990 for Growth, Activity and Equal Economic Chances (2015).

[6] Annual Bill for Market and Competition (2017).

[7] Federal Act amending the Federal Act Against Unfair Competition 1984 and the Federal Act on Price Marking (2016)

[8] Act on pricing freedom for tourist accommodation operators in contracts concluded with online reservation platform operators (2018).

[9] Explanatory note on the new VBER and Vertical Guidelines (available here).

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