November 9, 2015
Outcome of the Investigation
Following an investigation into alleged anti-competitive practices by Booking.com, the Competition and Consumer Protection Commission (CCPC) agreed with Booking.com that it would change the terms and conditions it requires of hotels and other accommodations listed on Booking.com.
Outline of the Case
Booking.com is a large Online Travel Agent (OTA) which provides a platform for use, on the one hand, by hotels and other accommodations (generally called ‘hotels’ in the rest of this summary) in order to attract customers and, on the other hand, by consumers to find hotels. Every day, over 900,000 room nights are reserved on Booking.com. Booking.com requires hotels listed on its website to sign terms and conditions which restrict the commercial freedom of hotels. The CCPC was concerned that these restrictions were disproportionate in their reach, and accordingly formed the view that Booking.com risked infringing both Irish and EU competition law.
In particular, Booking.com obliged hotels to offer it ‘price parity’. This meant that hotels were obliged to offer Booking.com their best price, so that a hotel could not offer lower prices elsewhere, whether online or offline, on its own channels or on third-party channels. These restrictions on hotels pricing freedom are known as Most-Favoured Nation (MFN) clauses or Across-Platform Parity Agreements (APPAs). The particular clause implemented by Booking.com is known as a “Wide MFN” because it restricted hotels’ pricing freedom on all channels.
Hotels which offered other channels lower rates than those offered on Booking.com were obliged to recoup the cost difference between the lower price and the Booking.com price. In the extreme, such “discounting” hotels risked being delisted from Booking.com.
A wide MFN clause risks dampening competition in a number of important ways:
- Hotels are unable to offer different rates on different OTAs, so that consumers cannot shop around for better value – the effect of the MFN is that a hotel will offer exactly the same price on each of the OTAs.
- It creates barriers to entry to the OTA market because it prevents new or smaller OTAs competing with Booking.com by offering consumers lower prices for equivalent hotel rooms.
- It reduces the incentive for OTAs to compete with each other by offering lower commission rates to hotels than those offered by competing OTAs. Since the OTAs cannot offer different prices on their website, they have little or no incentive to reduce the commissions they charge hotels.
- Hotels are unable to offer lower prices to particular customers who contact them directly. For example, a hotel will not be able to sell rooms to late walk-ins at a discount to the Booking.com rate (which they might want to do because the room would otherwise go unsold).
Apart from the CCPC, a number of other EU national competition authorities (NCAs) investigated similar conduct by a number of OTAs. The CCPC cooperated closely with its colleague NCAs with a view to achieving a consistent application of remedies across the EU.
Following an investigation, the CCPC and Booking.com agreed to alter the terms under which hotels would offer rooms for sale on Booking.com. Booking.com has signed an Agreement and Undertakings to this effect with the CCPC. Booking.com now implements a ‘Narrow MFN’, rather than a ‘Wide MFN’. What this means is that the scope of Booking.com’s price parity obligation is now much narrower. In the past, under the Wide MFN, hotels could not offer lower prices on any other platform. Under the Narrow MFN, hotels can, if they wish, offer lower prices on any other OTA, on the hotel’s own direct off-line channels (where consumers make their reservations by phone , email or calling in person to a hotel) as well as on the “members-only” section of the hotel’s website.
The only permitted restriction under the Narrow MFN is that a hotel will not be able to offer a price on their own website that is lower than the Booking.com price. The CCPC was of the view that this was a proportionate restriction on hotels which allowed Booking.com to earn a reasonable return on the investment it had made in its website and related technology (which generally greatly increases a hotel’s online visibility when compared to a hotel’s own website). This is sometimes referred to as the “free-riding” justification since it prevents the hotel from using the OTA to attract business but then by-passing it by offering a discounted price. However, under the terms of the commitments given by Booking.com to the CCPC, a hotel may undercut Booking.com on its website via a password-protected Members’ Area – but not on its general public-facing pages.
The Agreement and Undertakings signed by the CCPC and Booking.com took effect for a period of five years from October 1st, 2015, and apply to bookings made for hotels and other accommodations in Ireland which made by all consumers regardless of their location.Return to Closed Investigations