Online Platforms, Rate Parity, and the Free Riding Defence

Posted by Social Science Research Network

Online Platforms, Rate Parity, and the Free Riding Defence

Simonetta Vezzoso (University of Trento)

Abstract:      A two-sided platform business is a new type of intermediary to be found in a growing number of economic sectors. As to the hospitability industry in particular, recent innovations in the field of digital technologies prompted the rise of so called Online Travel Agents (OTAs) and the demise of the traditional merchant model.

Recently national competition authorities (NCAs) in the EU investigated so called rate parity clauses in the contracts between the three largest OTAs and their hotel partners. These are contract clauses laying down the hotelier’s obligation to display the same room prices across sales channels. The parallel investigations conducted by the NCAs revealed an array of serious anticompetitive effects stemming from rate parity obligations. While the German NCA concluded that there was insufficient evidence of the efficiency gains of these clauses, and therefore decided to prohibit them, the French, Italian and Swedish NCAs implicitly recognised that some level of protection against free-riding was necessary, and accepted commitments to reduce the scope of the rate parity obligation.

The hotel online booking cases were closely followed in the EU and beyond, since they could help clarify a number of key assessment issues concerning a category of commercial practices already widely spread in online markets. In-depth analyses of the NCAs’ findings are now needed, especially in view of the promotion of an effective antitrust-based platform regulation. In particular, this article explores some of the challenges related to the application of the traditional free-riding defence to rate parity obligations.