The Italian Competition Authority opens an Article 101 TFEU enquiry into the Favoured Nation clauses Booking and Expedia imposed on their partner hotels

Following a report lodged by Federalberghi, an association regrouping the majority of Italian hotels, by a decision made on 7th May 2014 the Italian Competition Authority (ICA) has opened an Article 101 TFEU investigation against two major Online Travel Agencies (OTA), Expedia and Booking (Online Hotel Reservation). The complainant reported that some clauses inserted in the agreements concluded by Expedia and Booking with their hotel partners, and namely the Most Favoured Nation (MFN) clauses, breached competition law.
The ICA held that the relevant market was the Italian market for online hotel reservation. This was a very concentrated market where Booking and Expedia were respectively the first and second most important operators and together accounted for 75% of the online reservations. The ICA took the view that the contested MFN clauses prevented the partner hotels from offering on their own websites or through competing platforms and other channels better rates and conditions than those advertised on the Expedia and Booking sites. The ICA likened the MFN clauses to resale minimum prices arrangements. It feared that they might lower competition between OTAs because a given OTAs would have less incentives to compete on the factor of commissions charged to partner hotels. The MFN clauses would impede that OTA from offering on its platforms lower rates as a result of lower commissions agreed with the hotels. Indeed, lower commissions would result in lower margin, which would not be compensated by an increase of sales by winning customers from competitors.
By the same token, the ICA pointed that the MFN clauses would put off new operators from entering the market. Due to the network effects in the market for online hotel reservation, in order to make a profitable entry an operator should attract enough hotels not yet contractually bound with the parties as well as enough customers. However, attaining these goals can be difficult due to the presence of the MFN clauses.
Finally, the ICA pointed to some monitoring tools adopted by Expedia and Booking that were thought to strengthen compliance with the MFN clauses. These tools included the Best Price Guarantee schemes offered by Booking and Expedia and the use of price comparator sites, such as Kayak and Trivago owned by the latter. Moreover, monitoring was also strengthened by some contractual provisions which in case of non-compliance empowered Expedia and Booking to lower the ranking of the non-compliant hotels which are published on their sites.
Though the EU Regulation and Guidelines on Vertical Restraints are silent on the issue of legality of MFN clauses, the position of the ICA in Online Hotel Reservation is consistent with the emerging legal thinking of the EU National Competition Authorities (NCA) and also by the European Commission. The Commission and NCAs tend to see MFN clauses as serious competition infringements affecting price competition in a similar way as RPM arrangements do (see for example, the Amazon cases decided by the UK OFT and the German Bundeskartellamt and the Apple case decided by the European Commission). In that regard, it may be worth noting the different position taken by the UK OFT in the IHG case. In this case the OFT considered vertical agreements concluded by Expedia and Booking with the hotel chain IHG for the online sale of hotel rooms. On the one hand, IHG committed to not offer hotel rooms on competing platforms at lower rates than those offered on the Expedia and Booking sites (MFN clause). On the other hand, Expedia and Booking committed to not offer discounts against the hotels' headlines rates (RPM clause). The OFT limited competition enforcement on the RPM clause and it did not object to the MFN clause. Finally, it closed proceedings with a commitment decision, by which Expedia and Booking agreed to amend their vertical agreements in order to offer discounts on rooms rate to members of closed groups.


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