Clarity on parity? Potential implications of CCI’s order against MMT-Go for intermediation platforms
Severe penalties were levied by the CCI against both MakeMyTrip India Private Limited and Ibibo Group Private Limited or MMT-Go on 19th October 2022. The CCI took it given such anti-competitive practices of these OTAs, who enter contracts of exclusivity and price parity with their hotel partners. The decision of the CCI is significant in this case because it creates precedents for the regulation of multi-sided platforms that offer wider online intermediation services, especially in the field of transaction processing.
In contracts between the OTAs and the hotels there are usually provisions that provide for the so called ‘price parity’, also known as ‘best-price’ or most-favourable-nation (MFN) clauses. These clauses can again be categorized as having: ‘‘wide’’ or ‘‘narrow’ ’ parity The former prevents hotels use cheaper selling points only on their Websites while the latter bans hotel from offering cheaper rates from other sales channels including Websites. The CCI found that having broad parity clauses in its contracts with partners impacted competition negatively and this is what MMT-Go was doing. They could not use the strategy of predatory pricing whereby the hotels gave lower prices on their website or any other OTA.
Thus, the CCI concluded that the parity clauses charged by MMT-Go were prejudicial to the market for online hotel bookings in India. Thus, by making hotels stay within these large parity clauses, MMT-Go eliminated the motivation of other OTA’s to onboard by offering fewer commissions. Other OTAs may attempt to set lower commissions, however, MMT-Go’s accommodation partners could not sell them at a lower price than what was being offered to them. This practice reduced the extent of price wars between OTAs whereby the entry of new players in the market became exceedingly challenging. In addition, the broad parity clauses allowed MMT-Go to extract more commissions from hotels and to invest the money received in the expansion of discounts, which only strengthened MMT-Go’s position in the Japanese market.
The CCI identified two other significant problems involving MMT-Go’s business; these were exclusivity arrangements and deep discounts. The CCI observed that deep discounting may not be a problem but it becomes when there is anti-competitive conduct such as parity clauses and exclusivity particularly where the dominant player is MMT-Go. These practices ensured that individual management of pricing strategies was not easily possible by the hotels and they were compelled to give considerable importance only to MMT-Go making the competition even more suppressed.
The CCI’s order also dwells on the excuses normally given to justify parity clauses. Narrow parity clauses could be deemed reasonable and justified in the context of avoiding sites ‘free-riding’ that is, OTAs investing in advertising whilst the hoteling chains get the best rates without offering the same in return while broad parity clauses were viewed as anti-competitive. The CCI did not accept the defence of wide parity clauses saying that it was an industry practice especially when levied by a dominant entity such as MMT-Go. It emphasises that some common practices in the industry require a second look whenever they are applied to suppress competition.
On issues of wide parity clauses, the CCI has taken a position that is in tune with changes that are being noticed on other jurisdictions, especially the European ones. Several European competition authorities have undertaken investigations of similar conduct by other OTAs including Booking. com and Expedia. These investigations have resulted in those companies agreeing to cease the use of wide parity clauses and instead adopt the use of tighter, or what can be termed as more specific, parity clauses. However, there are some issues with this: While most courts and regulators in Europe are convinced that only broad parity clauses undermine competition and English decision-makers have employed a similar reasoning the question of whether at least narrow parity clauses are anticompetitive has not only been the subject of fierce academic debate but also been decided differently in other European jurisdictions.
Some of the European countries have further extended to enact laws that prohibit the usage of both wide and narrow parity clauses about the platform. This legislative approach is quite evident in the increasing worry of controlling multi-sided platforms that can set conditions that may become detrimental to both the competition and the consumer. The EC also has recently amended the Vertical Block Exemption Regulation (VBER) and has withdrawn wide parity clauses from the list of practices, which may be exempted, which also shows a change in how such clauses may be perceived from the legal perspective.
The CCI order, although the matter will be appealed, provides a clear insight into the regulator’s views on parity clauses and other anti-competitive practices Multilateral conferences, especially those with dormant market power, should note, take this opportunity to renegotiate their contractual agreement. For example, platforms may consider replacing or eliminating narrower obligations with broader obligations to avoid antitrust scrutiny. Additionally, platforms need to rethink their standard contracts and business practices to ensure that their business partners can appropriately adjust their pricing and listings.
The CCI has indicated that it is likely to monitor the impact of parity clauses and other contractual obligations through a joint analysis of the entire market ecosystem. This approach looks at the interactions between market participants, including upstream and downstream operators, competitors, and end customers. Consequently, platforms should take a holistic approach when drafting contracts and ensure that their actions do not unduly restrict competition or harm business partners.
The order also highlights the need for platforms to rethink their pricing and discount strategies. While deep discounts, while appealing to consumers, can be problematic if they damage retailer competitors. Platforms should therefore be careful how they apply exemptions, especially when these are linked to other restrictive obligations such as parity clauses and exclusivity.
Another important takeaway from CCI’s order is that platforms must ensure that their algorithms are objective and transparent. The algorithms that determine the ranking, placement, and visibility of offers should be based on clear and fair criteria. Platforms need to ensure that these criteria are not biased in favour of certain merchants, especially if the platform has a vested interest in the success of a particular partner.
The CCI decision against MMT-Go is a significant issue in the Indian competition law landscape especially in terms of organizing multilateral events it sends a strong message to the dominant players in the market of widespread practices like parity clauses, exclusive contracts and substantial discounts when used to prevent competition It will, however, Companies operating in similar markets must take proactive steps to align their practices and Meets CCI guidelines This includes reviewing contract terms, ensuring the fairness of pricing policies, and maintaining transparency in platform operations to foster a competitive market environment.
Author: Sushrut Panjagall, Christ University, Pune Lavasa Campus
