An EU-wide series of inquiries compelled online travel agencies to materially alter their business practice. It has shown that authorities have ample tools and great potential to investigate and affect a market.
Sectoral inquiries are large-scale investigative tools used by competition authorities (including the European Commission) to better understand the functioning of competition in a certain market. The authorities usually commence sectoral inquiries on the basis of in-formation about certain discrepancies, shortcomings or lack of healthy competition in a given market. The sectoral inquiry may develop into a full-scale investigation against cer-tain practices, agreements and behaviour of market participants. This potential (risk) stems from the fact that uncovering evidence of potential infringements is one of the purposes of the investigation. Thus the sectoral inquiry allows competition authorities to commence an investigation on a larger scale and to initiate specific cartel or other proceedings only if there is a clear indication or evidence of an infringement in the market. In light of the latest developments – where authority officials also highlight that economic analysis fails to provide the competition authorities with a clear indication of whether competition may or may not be distorted in a market – such investigations gain in importance.
Inquiry into the online accommodation booking market
The Hungarian inquiry was launched on 29 July 2013. The Hungarian Competition Authority (“HCA“) researched and analysed market conditions and investigated market participants extensively. Besides contacting the market participants with requests for information, the HCA employed market research agencies, and conducted comprehensive analysis of statistical and market survey data. The HCA ultimately concluded that the price parity clauses used by online travel agencies (“OTA“) were to blame for the rigid market prices. These so-called “most favoured nation” clauses obliged the hotels not to offer lower prices on any possible distribution channel than on the website of the respective OTA. These provisions led to standardised prices, which effectively undermined competition. The accommodation provider was constrained in its activity, as it could not offer lower prices on its website or any other channel (including through other OTAs). This restrictive framework ultimately resulted in standardised prices. Thus, although OTAs fostered price competition between accommodation providers with straightforward price comparison possibilities, competition between the OTAs was practically absent, furthermore the prices of accommodation providers were identical on all channels.
Compelled changes in business
As a result of the inquiries, price parity clauses have been banned in Germany and France. Most competition authorities, however, seem to accept OTAs’ responses to the scrutiny – narrow price parity clauses. In the framework of narrow price parity clauses, accommodation providers may not offer less favourable conditions on the OTA’s website compared to their own. This gives accommodation providers the freedom to offer lower prices on other channels, eg in a reply to an e-mail, on the phone or, most importantly, on the websites of different OTAs. The HCA terminated the sectoral inquiry with the ex-pectation that the introduction of narrow price parity (and the subsequent elimination of wide price parity) will strengthen competition on the market. Nevertheless, it made clear its willingness to intervene if narrow price parity fails to bring an effective and lasting positive change in the dynamics of competition.
Lessons to learn
The HCA – in line with the general opinion of the competition authorities – seems to accept the legitimacy of narrow price parity, also considering the OTA’s interest in providing incentives for booking through their, and not the accommodation provider’s, website (prevent “free riding”). Nevertheless, the HCA continues to keep a close eye on market developments, so although the alert level for OTAs has dropped, an intervention cannot be ruled out.
Competition authorities (including the European Commission) are willing to proactively gather information on the markets and have a variety of tools to do so. Sectoral inquiries are among the most effective proceedings to gather information on a large scale and in-directly affect the behaviour of market players. Consequently, the authorities have the potential to cause involuntary and immense changes on the market. As any information conveyed to the authorities may result in an investigation or increased scrutiny, a high level of caution and professional advice remain indispensable in such cases.
A sectoral inquiry allows competition authorities to commence an investigation on a larger scale and to initiate specific cartel or other proceedings only if there is a clear indication or evidence of a market infringement.