08 Jul 2015
(by ) There are at least seven national competition authorities in the EU alone which have recently dealt with or are currently dealing with most-favoured-customer (MFC) clauses adopted by online platforms such as Booking.com, Expedia, iBookstore, Amazon, etc. One of the most recent developments has been the acceptance of commitments offered by Booking.com to the French, Swedish and Italian competition authorities. The acceptance of the said commitments might represent at best an ineffectual solution to any problem existing on the relevant market. In the worst case scenario, the commitments may have pushed the industry from a potentially less-anticompetitive equilibrium to a potentially more-anticompetitive equilibrium.
By virtue of the commitments, Booking.com has agreed not to use the ‘wide’ MFC clauses in its contracts with its hotel partners for a period of five years from 1 July 2015. The ‘wide’ MFC clauses in question seek parity between the prices of Booking.com and other platforms, as well as between the prices of Booking.com and a given hotel’s offline channels. This means that Booking.com can no longer require the hotels to offer Booking.com the best price across platforms or the best price that the hotel charges through its offline channels. Yet, the commitments do not stop Booking.com from imposing MFC clauses to the extent that the clause seeks parity between the prices on Booking.com and the prices on the hotel’s online channels such as the hotel’s own website. This is to be contrasted with the infringement decision taken by the Bundeskartellamt in HRS which concerned identical clauses to those subject to the commitments in Booking.com, the main difference being the party to the action (namely, Hotel Reservation Service, a leading German online travel agent). After the confirmation of its HRS infringement decision, the Bundeskartellamt sent a Statement of Objections to Booking.com concerning its MFC clauses. The crucial difference between these two sets of actions is that the commitments do not prevent Booking.com from seeking parity between prices on Booking.com and the hotel’s online channels, whereas the Bundeskartellamt’s infringement decision prohibited all types of MFC clauses.
The authority actions in these recent cases will not only cause problems concerning legal/business certainty; the uniform application of Article 101 TFEU in different Member States; the increase in the consumers’ search costs through the offer of better prices via offline channels, the relevant authorities might have also missed the point in all of their actions. On 25 June 2015, Booking.com announced that it will extend the commitments it offered to the Italian, French and Swedish Authorities to all EU Member States and will abandon the wide MFC clauses with hotel partners across Europe. On 1 July 2014, Expedia followed suit and voluntarily committed to taking the same action as Booking.com despite there being no formal action or decision against Expedia yet. Thus, Expedia also announced that it will abandon the same MFC clauses as Booking.com from 1 August 2015 for a period of five years.
What appears to have gone unnoticed is a statement buried in the penultimate paragraph of Booking.com’s Press Release in which Booking.com states that it will ‘continue its Best Price Guarantee and match any lower price that may be found on another booking website’. A quick visit to the Expedia website reveals that Expedia also has the same ‘Best Price Guarantee’ (BPG). A visit to the HRS Website reveals that HRS has the same money-back price guarantee. On the basis of the publicly available documents, none of the authorities involved in the discussed cases have considered the ‘Best Price Guarantee’ outside the context of an MFC clause to be potentially anticompetitive as part of their procedures. For example, the commitments offered by Booking.com only concern MFC clauses found in the contracts between the hotel partners and Booking.com and in fact, explicitly allow for Booking.com to continue its use of the ‘Best Price Guarantee’. Note that an MFC clause relates to the price the hotel can offer to the platform, while a BPG relates to the price the platform offers to hotel guests. What is grave about the situation is that although the anticompetitive effects of MFC clauses are not so well established in the economics literature and the effects of platform MFC clauses are even less well-established, the anticompetitive effects of price-matching-guarantees (BPGs) are well known.
If there are indeed anticompetitive practices on the relevant markets, what the European authorities might have done is to ban the potentially less-anticompetitive contractual clause whilst leaving completely untouched the potentially more-anticompetitive promise which will – as a result of the competition law intervention – focalise the options of the industry participants. In fact, ‘Booking.com trusts that these changes will set the tone for an industry wide solution’. Although the authority intervention might have prevented the hotel partners from being subjected to the obligation to offer the best price on Booking.com, etc, if there are any anticompetitive practices on the market, it will now be the consumers who will facilitate the collusive arrangement. Under the unilateral promise of the ‘Best Price Guarantee’ which does not require any agreement with any other party, the platforms will now use consumers (ie hotel guests) to inform the platforms of any better prices found on any other platform with the possible consequent effect that eventually there will be no lower price to report since those prices will over time become identical.
The Competition and Markets Authority (CMA) is currently considering the next steps in relation to its investigation into Booking.com/Expedia and Intercontinental Hotels Group, after its decision was quashed on appeal to the Competition Appeal Tribunal. The CMA is apparently considering closely what it called the ‘significant development’ of Booking.com’s announcement to apply the commitments to all EU Member States. The CMA may well be considering that this will suffice to resolve the competition issues since the potentially infringing MFC clauses will no longer be used. It can only be hoped that the CMA does not fall into the same trap as the other European competition authorities.
A detailed assessment of the competition law issues surrounding the MFC clauses of online platforms can be found in (forthcoming) P Akman ‘A Competition Law Assessment of Platform Most-Favoured-Customer Clauses’ the abstract of which is available at .
See Press Release ‘Booking.com to Amend Parity Provisions Throughout Europe’ .
See Booking.com Commitments Article 3 .
For the literature, see P Akman and M Hviid ‘A Most-Favoured-Customer Clause with a Twist’ (2006) 2 (1) European Competition Journal 57, 71-72.
See final sentence in Press Release ‘Booking.com to Amend Parity Provisions Throughout Europe’ .
See Hotel Online Booking Investigation .
It must be noted that the CMA case only tangentially concerned the MFC clauses since its main subject were restrictions on discounting room rates imposed by the hotel partner to the online travel agents.