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Booking.com, Expedia's Asian woes may thrust parity-clauses back onto global stage
20 Apr 2020 12:00 am by James Panichi
The regulatory push against online booking platforms such as Booking.com and Expedia appears to have lost momentum in Europe, where antitrust enforcement over so-called price-parity clauses has been disjointed and lacking an overarching strategy.
As for the United States, the Department of Justice has investigated parity clauses — also known as most-favored nation clauses, or MFNs — in the context of healthcare and e-books, but there’s nothing on the public record pointing to regulatory interest in the relationship between platforms and hotels.
The situation in Asia, however, is another story.
This week, MLex revealed that Booking.com had approached South Korea’s antitrust regulator with a commitment on MFN clauses, six months after the Korea Fair Trade Commission, or KFTC, announced it had started to examine the international accommodation platforms.
The move wasn’t an anomaly in Asia. Earlier this year, Hong Kong’s competition regulator obtained commitments from both US- and China-based accommodation platforms to wind back their use of MFNs, while Australia’s competition watchdog is continuing to examine price-parity clauses.
And in Japan, the controversial clauses have seen the local competition watchdog take aim at the usual international suspects, along with domestic players, prompting dawn raids and leading to considerable resentment on the part of at least one of the targeted companies.
This regional push is flagging that Asian regulators now view price-parity clauses as having the potential to harm competition in the hotel industry. And it’s all happening at a time when all digital platforms — including Facebook and Google — are facing greater scrutiny.
The list of companies at the center of these reviews may vary from one jurisdiction to the next — Hong Kong’s probe included Trip.com, in South Korea local player Yanolya has also attracted interest and in Japan the online juggernaut Rakuten has found itself on the receiving end of dawn raids.
But there’s a common thread running through all of the investigations: the fear that the accommodation providers locked into MFN clauses are being denied the right to advertise their rooms at a lower price on the hotels’ own website or, in some cases, on rival accommodation platforms.
These practices, some prominent Asian regulators fear, pose a serious threat to competition and may lead to higher prices.
Yet it’s unclear whether the commitments put forward by platforms in Australia, Hong Kong and South Korea will be enough to appease Asia’s increasingly assertive regulators, or will simply buy the platforms some time.
Either way, the increased skepticism on the part of Asian regulators in dealing with the platforms, along with the mixed messages coming from Europe’s national watchdogs, may be moving the epicenter of the global pushback against MFN clauses eastward.
Remedies in South Korea
Even before MLex revealed Booking.com’s peace offer to the KFTC this week, it was clear that the South Korean regulator was tightening the screws on accommodation websites operating in the country, including Expedia and the Booking.com-owned Agoda, which is based in Singapore.
When she was appointed as KFTC chairwoman, Joh Sung-wook flagged her intention to make better use of enforcement tools, such as consent orders, to force platforms to offer quick remedies to help consumers.
The antitrust probe into accommodation platforms was one of the first official probes taken up by the technology taskforce established within KFTC last year.
The regulator found that various hotels in South Korea had contracts in place that included price-parity clauses. The watchdog was concerned that MNFs were creating barriers to entry, with new platforms unable to offer lower prices than existing players.
Following the discovery of the clauses, the regulator began pondering its options.
It was in this context that Booking.com came forward with its commitments — self-corrective measures that have yet to be accepted by the KFTC. The ball is now in the regulator’s court and little is known about the nature of the offer.
Booking.com hasn’t responded to MLex’s inquiries; Expedia said it didn’t comment on regulatory matters.
A further complication is the fact that the KFTC hasn’t been able to conduct on-site searches of the platforms’ local offices due to the outbreak of Covid-19, which has prevented officials from carrying out dawn raids.
This has left the regulator to review documents collected through its field searches. MLex understands that the KFTC has also been in contact with local legal representatives of the platforms targeted by the probe, requesting further information.
In April 2019, officials from the Japan Fair Trade Commission, or JFTC, raided Expedia Holdings, Booking.com Japan and local platform Rakuten, suspecting that they may have included MFN clauses in their contracts with Japanese hotels.
The three platforms are alleged to have required the lodging operators to guarantee their lowest prices and the widest selection of vacancies, or their equivalents, as a condition of listing on their platforms. That means that the hotels couldn’t offer better prices — anywhere.
The probe prompted Rakuten, which runs Rakuten Travel, to later offer to eliminate parity clauses, leading the JFTC to close the investigation into the Japanese company in October. MLex understands that the investigation into Expedia and Booking.com is still ongoing.
Yet Rakuten chief, Hiroshi Mikitani, sounded unhappy about the MFN-clause resolution when the issue was raised at an earnings briefing in February, when the online mall operator was in hot water over another antitrust issue, having been raided just three days earlier over the suspected abuse of its superior bargaining position in dealing with its third-party merchants.
“The foreign companies investigated at the same time didn’t face anything additional from the JFTC, and only the Japanese company was dealt with,” said Mikitani, Rakuten’s chairman and CEO.
Antitrust experts have told MLex that Booking.com and Expedia had probably declined to offer commitments even though the JFTC had probably notified all three online travel agencies that they could offer corrective measures.
The remedies offered by Booking.com in South Korea came around the time that the platforms, including Expedia and Chinese rival Trip.com, were committing themselves to removing some parity clauses in Hong Kong.
This has prompted speculation in South Korea that the Hong Kong model may be replicated in other Asian jurisdictions.
In March, the three platforms agreed to remove certain parity clauses they had in place with hotels and other lodging operators in Hong Kong — clauses that covered room prices, availability and conditions — to allay the concerns of the Hong Kong Competition Commission.
After an investigation, the territory’s regulator found that such agreements could have the potential effect of harming competition among the online platforms and hindering entry and expansion by new or smaller online platforms.
These commitments offered to the Competition Commission mean that each platform will no longer be able to require that hotels and other lodging operators always offer a specific platform the best room prices and conditions — requirements referred to as “broad” parity clauses.
However, the commitments won’t stop the platforms imposing restrictions on the hotels’ own online sales channels — known as “narrow” parity clauses.
This means hotels won’t be able to use their own websites to undercut offers on the platforms — a restriction deemed pro-competitive because it stops hotels free-riding on the platforms.
The antitrust regulator, satisfied that these changes could address its concerns, proposed to accept the commitments, which went through a public consultation period from March 31 to April 23.
Keeping it vertical
In Singapore, the competition regulator conducted a market study on online travel booking and found insufficient evidence to suggest an infringement related to price-parity clauses under the country’s competition law.
This conclusion was based on the fact that “narrow” party clauses could be considered vertical agreements, which are excluded from the law.
The Competition and Consumer Commission of Singapore also found that MFN clauses could potentially generate pro-competitive effects and efficiencies, like avoiding the risk of free-riding and making the comparison process easier for consumers.
However, the Singapore watchdog said it took seriously the potential harm that can come from these clauses, such as restricting competition among booking sites in terms of commissions, and vowed to actively monitor market developments.
Concerns over “broad” parity clauses also appear to have triggered concerns in India, where the competition regulator has homed on clauses requiring a hotel to make its rooms available exclusively to a platform for a specified number of days could amount to an abuse of dominance.
The Competition Commission of India has now launched a probe that also involves local online reservations company MakeMyTrip, following a complaint.
In Australia, the regulatory fight against price-parity clauses has been bubbling away since 2008, when Expedia was first required to amend the wording of its website. And the ongoing investigation by the country’s competition regulator suggests antitrust concerns remain, despite concessions.
The Australian Competition & Consumer Commission, or ACCC, launched an investigation into MFN clauses in 2015 — a probe that targeted Booking.com and Expedia, among others. This led to new rules in 2016 banning “broad” parity clauses but allowing “narrow” clauses to remain in place.
But unlike Singapore’s regulator, the ACCC appeared to continue to harbor concerns — concerns that the regulator conceded had been exacerbated by evidence uncovered in a civil lawsuit against Flight Centre, a travel agent with brick-and-mortar outlets as well as a strong online presence.
The Flight Center lawsuit, which went all the way to Australia’s highest court, focused on parity clauses demanded of airlines advertising with the travel agent and appeared to raise concerns about how “narrow” clauses were being used.
In the wake of the decision in the ACCC’s favor by the High Court of Australia, the ACCC confirmed that it had reopened an investigation into price-parity clauses — suggesting that competition concerns persisted, despite the platforms offer to back away from “broad” clauses.
And there was clearly no love lost between the ACCC and the platforms. In later 2018, ACCC Chairman Rod Sims urged consumers to pick up a phone and contact hotels directly, bypassing the platforms entirely.
The Australian regulator usually reveals next to nothing about its investigations, but recently told MLex that Expedia was no longer a target of its ongoing probe, after the US platform offered additional commitments. It remains unclear what those commitments entailed.
In Europe, the clauses employed by Booking.com, Expedia and German-based HRS has split national competition enforcers in two camps.
The majority — ranging from the UK down to Italy — arrived at the same conclusion as Hong Kong and Singapore, agreeing that the online hotel booking businesses should drop their “broad” parity clauses in settlements.
On the other hand, the German competition authority deemed the “narrow” clause illegal too, implying the companies would need to apply different clauses within the EU’s single market. However the verdict was overturned on appeal, and is now before the courts.
To make matters more complicated, the French and Italian parliaments went further than their own antitrust agencies and outlawed “narrow” clauses as well.
The divisions have left the European Commission, the European Union’s regulator, under fire for failing to take over jurisdiction in order to find a harmonized approach, both in terms of competition and regulation.
This absence of a consistent and common European regulatory response is likely to add weight to moves in key Asian jurisdictions, including Japan and South Korea. This suggests that a strong stance on MFN clauses in Asia is likely to resonate globally.
-Additional reporting by Joshua Sisco