The Consumers’ Association last year called on the NMa to investigate the online prices of hotels offered on booking sites. A survey by the Consumers’ Association had shown, for instance, that the prices of 5 different hotels in Amsterdam were (practically) the same in 83% of cases. This was mainly due to the fact that most booking sites use a so-called price parity clause. The question is whether these kinds of clauses are compliant with competition law.
Price parity clause
In general, price parity means that a hotel must guarantee that the price it offers on a particular booking site is the same or lower than the price offered by the hotel itself, via its call centre, its reception desk or on other booking sites. A clear example of a price parity clause is clause 2.2.2 of the general terms and conditions of Booking.com.
The investigation by the Consumers’ Association mentioned above prompted MP Bouwmeester (PvdA) to ask Parliamentary questions. In his response to these questions, Minister of Economic Affairs at the time Verhagen announced last year that a discussion had taken place between the Dutch Competition Authority (NMa) and Koninklijke Horeca Nederland (the Dutch trade association for the hotel and catering industry). According to the minister, a price parity clause, to the extent the NMa is aware, does not prevent a hotel owner from offering different prices for bookings made at its reception desk or over the phone. The minister concluded that there were no indications that the Competition Act was being violated by hotels or the booking sites.
Situation elsewhere in Europe
Booking sites do not only use price parity clauses in the Netherlands. These clauses are used elsewhere in Europe as well.
In Germany the use of price parity clauses has already resulted in a court case. In its judgement of 15 February 2012, the Oberlandesgericht Düsseldorf ruled in a case between JBM JustBook Mobile GmbH and HRS – Hotel Reservation Service, Robert Ragge GmbH (HRS), two booking sites, that the price parity clause used by HRS was in violation of competition law because it impeded general price competition between booking sites.
The Bundeskartellamt, the German counterpart of the NMa, has furthermore launched an investigation into the price parity clauses used by HRS. In a press release from the Bundeskartellamt, president of the German competition authority Andreas Mundt states:
“HRS is by far the most important booking site in Germany. The best price clause prevents other booking sites from getting a foot in the door by providing better offers. That is why these kinds of clauses are a threat to competition.”
The use of price parity clauses has not gone unnoticed in Switzerland either. In December of last year the Wettbewerbskommision, the Swiss counterpart of the NMa, started an investigation into the price parity clauses used by Booking.com, Expedia and HRS. In a press release, the Wettbewerbskommision stated:
“there are indications that certain clauses in the contracts between Booking.com, Expedia and HRS and their separate, affiliated hotel partners could affect the competition between these online booking sites. This applies in particular for the so-called best price clauses that restrict hotels from being able to set different retail prices via different distribution channels.”
Finally, the Office of Fair Trading (OFT), the British counterpart of the NMa, has also started an investigation into Booking.com and Expedia. It can be concluded from the OFT’s press release that the OFT believes that Booking.com and Expedia are acting in violation of competition law. According to the OFT, the individual agreements that Booking.com and Expedia had concluded with InterContinental Hotels Group limit the possibility for the booking sites to give a discount on the price of hotel rooms (room-only sales). In the OFT’s view, the alleged infringements serve by their nature to limit competition because they reduce price competition between booking sites and raise the threshold for entering the market and/or increasing market share. After all, according to the OFT, the price parity clauses prevent booking sites from offering discounts to consumers.
Commissioned by the OFT, the Laboratorio di economia, antitrust, regolamentazione (LEAR) investigated the competition law objections to price parity clauses. The results of this investigation were published in September 2012 in the report Can ‘Fair’ Prices Be Unfair? A Review of Price Relationship Agreements.
The position of former minister Verhagen that even if they accept price parity clauses, hotels are still free to offer different prices for bookings at the reception desk or over the phone seems rather oversimplified. After all, the price parity clauses usually apply to every offer. There does not seem to be much room to differentiate. Taking a look at our neighbours, the tough wording used by the various competition authorities against the use of price parity clauses by booking sites is particularly noticeable. In light of this, former minister Verhagen’s conclusion that the NMa has no indications that the booking sites are acting in violation of competition law can at the very least be called remarkable.