In August 2020, the FCO published the results[1] of its investigation into the effect of narrow price parity clauses on online sales.  Narrow price parity clauses restrict suppliers from offering their products or services at lower prices or more favorable conditions in certain sales channels.  In contrast, wide price parity clauses restrict suppliers from offering their products or services at lower prices or with more favorable conditions anywhere else.

The investigation was launched in the aftermath of the FCO’s proceedings against (“Booking”).[2]  In 2015, the FCO prohibited Booking from using narrow price parity clauses.  In June 2019, however, the Düsseldorf Court of Appeal (“DCA”) ruled that narrow price parity clauses are compatible with competition law.  It found that these clauses can prevent free riding from hotels where customers find the hotel on the online booking platform but later book the room at the lower price on the hotel’s own website; thereby benefitting from the platform’s service while avoiding the platform’s fees.  The FCO has appealed the DCA’s judgment.

Within the framework of the appeal proceedings, the DCA had requested the FCO to examine the effects of the prohibition of the (narrow) price parity clauses on the competitive relationship between the online hotel platforms, on the hotels’ pricing and the consumers’ booking behavior.  In particular, the DCA asked whether the narrow price parity clause was necessary to prevent free-riding on the online platform’s services.

The FCO’s investigation covered the period from 2015 to 2018, during which platform operators changed their practice of applying narrow price parity clauses.[3]  The FCO gathered information from large and small online booking platforms in Germany, especially Booking, HRS, and Expedia and conducted online surveys with a representative sample of approximately 300 randomly selected accommodation providers listed on at least one of those three platforms.  The FCO also tasked a market research company to examine how and whether prospective customers booked with Booking even when accommodation providers’ own online sales channels offered more favorable rates or conditions.

The FCO’s main findings can be summarized as follows:

  • The FCO does not see a free-riding situation or expects Bookings to incur any loss of turnover in the absence of narrow price parity clauses. Narrow price parity clauses instead lead to a situation in which consumers who do not use Booking must pay higher accommodation rates.
  • Accommodation providers used a mix of available pricing options including online booking platforms, on which the accommodation providers took significant care to improve their rankings. Three-quarters of online sales were on online booking platforms, and accommodation providers that used Booking consider it “almost indispensable in economic terms.”[4]
  • Despite most accommodation providers taking advantage of price differentiation possibilities, most consumers booked where they first found the accommodation and thus rarely compare prices, eliminating significant redirection or free-riding concerns. For customers who used Booking, 99% booked on Booking rather than with the accommodation.  Only one-third of consumers compared prices on a particular accommodation on different booking channels.
  • Usually, customers who already know an accommodation are the ones to use an accommodation provider’s own direct online sales channel; these customers made up about one-third of accommodation consumers total. Their bookings made up two-thirds of the bookings made using the accommodation providers’ own direct online sales channel.  The other one-third of customers who booked directly with the accommodation learned about it on major search engines or another website, not Booking.  In addition, over one-fourth of customers using Booking already knew the accommodation, but nonetheless booked using Booking.

The investigation is relevant beyond online accommodation booking platforms, and the FCO’s publication of its empirical findings is the first of its kind concerning potential free-riding effects in the absence of (narrow) price parity clauses.

[1]               “The effect of narrow price parity clauses on online sales – Investigation results from the Bundeskartellamt’s Booking proceeding” (“Investigation Results”) in the paper series “Competition and Consumer Protection in the Digital Economy” dated August 2020, available in English here.

[2]               Booking (B9-121/13), FCO decision of December 22, 2015, available in English here.  See also our article in the German Competition Law Newsletter May – June 2019, p. 4 et seq., available in English here.

[3]               While platform operators applied such clauses until the end of 2015, price parity clauses were no longer used from the beginning of 2016.

[4]               Investigation Results, p. 4.