Parity Clauses Research Articles

Article: The Digital Markets Act and the Whack-A-Mole Challenge

This article addresses the implementation of the Digital Market Act’s rules on anti-circumvention. An effects-based approach is presented and a three-step methodology is proposed to identify whether a certain practice should be conceptualized as circumventing an obligation. This approach is applied to several practices suspected of circumventing the ban on parity clauses and an analysis is carried out to establish how the results fit into the Digital Market Act’s concept and instruments for avoiding circumvention. Moreover, the role that the anti-circumvention rules may play in safeguarding the effectiveness of the restrictions on tying and self-preferencing in ranking are elaborated on, thus illustrating how they may operate to future-proof the Digital Markets Act but also where their limitations lie. Digital Markets Act, anti-circumvention, antitrust law, price parity clauses, bundling, self-preferencing

MFNs: the latest turn in the policy debate – key lessons from the CAT’s judgment on CompareTheMarket’s use of wide MFNs in home insurance

For the last ten years, most-favoured-nation clauses (MFNs), also known as price parity clauses, have remained a hotly debated topic in competition policy. The direction of travel has generally been one-way, culminating with the UK and EU vertical block exemption regimes designating wide MFNs as ‘hardcore’ or excluded restrictions respectively. However, the UK Competition Appeal Tribunal’s judgment in BGL (Holdings) Limited v. Competition and Markets Authority injects nuance into the debate. The CAT found that, not only had the Competition and Markets Authority not proved its case on anti-competitive effects, but that it was unlikely that, in this case, wide MFNs had any effect on the key market outcomes of retail prices (i.e. insurance premiums), commissions paid by insurers to CompareTheMarket or increased barriers to entry. The CAT’s judgment and the economic evidence presented throughout the case provide valuable insights into how the competitive effects of wide MFNs should be assessed, why harmful effects may not arise and the role that econometric evidence can play. As explained in this article, at most, MFNs (whether wide or narrow) only directly restrict intra-brand competition and, if coverage and adherence to the MFNs are limited, competitive effects (whether pro-competitive or anti-competitive) may not arise. In this case, there was an opportunity to test empirically for any competitive effects, as CompareTheMarket removed its wide MFNs shortly after the CMA’s investigation opened (and no other price comparison website had them in place). As described by the CAT, ‘such a “before and after” consideration at least prima facie lends itself to econometric analysis’, which can provide a robust comparison to the situation that prevailed when wide MFNs were applied. In contrast, the CAT raised concerns with the qualitative evidence relied on by the CMA and its absence of any quantitative analysis of the competitive effects, if any, of the wide MFNs.

Platform Investment and price parity clauses*

Platforms use price parity clauses to prevent sellers setting lower prices when selling through other channels. They claim these restraints are needed so platforms have incentives to invest in providing search services—without them, consumers would search on the platform but then switch to buy in a cheaper channel. In a model incorporating these effects, we find that wide price parity clauses lead to excessive platform investment while narrow (or no) price parity clauses lead to insufficient platform investment. Taking these investment effects into account, wide price parity clauses lower consumer surplus but have ambiguous effects on total welfare.

Platform Price Parity Clauses and Consumer Obfuscation*

Several antitrust authorities have investigated platform price parity clauses around the world. I analyze the impact of these clauses when platforms design a search environment for sellers and buyers to interact. In a model where platforms choose the unit search cost faced by consumers, I show when platforms can profitably obfuscate consumers through high search costs. Then, I show that price parity clauses, when exogenously given, can increase or reduce obfuscation, prices, and consumer surplus. Finally, when price parity clauses are endogenous, they are only observed in equilibrium if they hurt consumers.

The German Federal Supreme Court’s Judgment in Booking.com as a Case Study of the Limitations of Competition Law

The German Federal Supreme Court (BGH) held that the use of narrow price parity clauses (NPCs) between Booking.com and hotels infringed Art. 101 Treaty on the Functioning of the European Union (TFEU), confirming the Federal Cartel Office’s decision. The Supreme Court based its judgment mainly on the following grounds: (1) the use of these clauses restricts intra and inter-brand competition between hotels; (2) NPCs cannot be considered an ancillary restraint in the sense of Art. 101(1) TFEU; and (3) avoiding free-riding through these clauses cannot be considered as a justifying efficiency in the present case under Art. 101(3) TFEU. The present comment focuses on the analysis of the Court regarding (3) and argues that the reasoning in the judgment made conceptual mistakes and statements against settled EU law. The case shows the difficulties the Court had in handling a case where dynamic considerations are important. Therefore, even though the Court may have had valid concerns regarding NPCs, the judgment at hand is a step in the wrong direction regarding the judicial function of guidance of undertakings throughout the economy that wish to comply with competition law.

Legal Aspect of Applying Price Parity Clauses by Digital Platform Owners

The article contains a legal analysis of the price parity clause. Its types from the point of view of Russian and foreign competition law. A number of decisions of Russian and foreign courts, antimonopoly regulators made on the basis of antimonopoly investigations against owners of digital platforms who used the clause on price parity in entrepreneurial activities were considered. A comparative analysis of these decisions was carried out to identify similarities and differences in approaches to the legal qualification of the actions of the owner of the digital platform on the use of the price parity clause. In particular, in the countries of the European Union, antitrust regulators and courts have qualified the relevant actions of the owner of the digital platform as a violation of the legislative ban on the conclusion of vertical agreements restricting competition. The Russian antimonopoly regulator and the courts qualify the actions of the owner of the digital platform as a violation of the ban on abuse of dominant position in the relevant commodity market.The article also considers the approaches of Russian and foreign competitive departments, courts to determine the boundaries of commodity markets, the participants of which are the owners of the digital platform.

Narrow Price Parity Clauses: Beyond Booking.com (Germany)

Narrow Price Parity Clauses: Beyond Booking.com (Germany)

Platform price parity clauses and market segmentation

AbstractPrice parity clauses (PPCs) are widely adopted by online platforms to force client sellers not to lower their prices elsewhere. We investigate under what conditions online travel agencies (OTAs) decide to apply PPCs, and how this affects hotels' listing decisions on OTAs. We find OTAs adopt PPCs when there is a sufficiently large competitive pressure in the market, either between OTAs, or between hotels (or both). PPCs allow OTAs to charge higher commission fees to hotels, which can respond by delisting from certain OTAs, thereby segmenting the market. We also find that consumers and hotels generally lose out with PPCs.

Vertical restraints in an online world – the consumer perspective

This paper maps out some of the vertical restraints in the online environment that are particularly relevant from the consumer perspective. This article focuses on some of the most contentious vertical restraints that directly involve prices, are particularly relevant for online commerce and are harmful to consumers – resale price maintenance, price parity clauses, dual pricing and bans on price comparison websites. We look at how these vertical restraints have been analysed in the EU to date and where we should go from here from a consumer perspective. Notwithstanding this limited focus, other vertical restraints—especially on online sales, selective distribution systems, or non-compete obligations—can also have strong anti-competitive effects and harm (final) consumers.

Designing Remedies for Digital Markets: The Interplay Between Antitrust and Regulation

Abstract Regulatory interventions aimed at promoting competition in digital markets face a challenge: How to design remedies that actually improve welfare? This article helps provide an answer to this question. First, it maps out the frontier of remedy design: Part II.A summarizes antitrust and regulatory remedies imposed on digital companies over the past decades, while Part II.B reviews nineteen reports on competition in digital markets to identify proposals to advance antitrust or regulatory interventions. Part III, the core of the article, builds on this review to propose a new, two-level framework for remedy design that integrates pro-competition antitrust and regulatory interventions as part of a single policy. First, at the substantive level, it develops a compounded error-cost framework that helps authorities to choose between different remedies applicableto a given conduct: when policymakers accept higher risks of over-enforcement in deciding to intervene, they should compensate by taking lower risks of over-enforcement in remedy design and vice-versa. Second, at the institutional level, the article proposes that authorities consider separating three connected but different key activities in remedy design: (i) identifying harmful behavior, (ii) designing interventions, and (iii) monitoring and adapting remedies. It also outlines four criteria (legal mandate, need for technical expertise, relative risks of regulatory capture, and overall administrative costs) that can help authorities allocate these tasks among different regulators. Part IV concludes by applying this framework to seven types of conduct that Part II identified as potentially problematic: (i) discrimination, unfair treatment, and self-preferencing; (ii) exclusivity contracts; (iii) tying or bundling; (iv) MFNs and other price parity clauses; (v) refusals to deal, limited interoperability, and lack of data portability; (vi) exploitative or exclusionary terms of service; and (vii) nudges, sludges, and other concerns around user interfaces.

The impact of platform restriction on manufacturer quality transparency in the blockchain era

ABSTRACT This study investigates a supply chain comprising of a manufacturer and a retail platform, wherein the former decides the quality information transparency strategy of products and the latter determines whether or not to implement price parity clauses (PPCs). The manufacturer can directly sell the end-of-season product to the end-consumer market and indirectly via the retail platform. Specifically, this study considers two quality information transparency strategies (i.e. ex-ante blockchain-adoption and ex-post voluntary disclosure) that differ on whether the manufacturer’s decision on quality information transparency strategy is made before or after observing the actual product quality. Results show that the manufacturer may prefer the ex-ante blockchain-adoption strategy in specific conditions but maintains the flexibility of information disclosure under ex-post voluntary disclosure strategy. Moreover, the implementation of PPCs significantly reduces the manufacturer’s incentive to disclose a large extent of quality information transparency when the effort cost is high or the service effect coefficient is low. By contrast, the manufacturer is more likely to adopt information transparency strategies under PPCs when the effort cost is low and the service effect coefficient is high. More interestingly, contrary to theories of harm from PPCs, the implementation of PPCs may simultaneously benefit the manufacturer and retail platform, achieving a ‘win-win' situation.

The case against ‘Narrow’ price parity clauses

Authors: Price parity clauses have received significant amount of attention from both academics and antitrust agencies. The predominant view is that ‘narrow’ parity clauses are not as pernicious as ‘wide’ parity clauses and they are necessary to restrict free-riding; for instance, free-riding of hotels on Online Travel Agents’ (OTAs) efforts. This paper challenges this understanding. The paper builds upon a recent investigation report from the Bundeskartellamt in Booking.com case that empirically shows the insignificance of free-riding in the market for online hotel intermediation. With explicit reference to these empirical findings the German Supreme Court (BGH) has rejected a justification of narrow parity clauses and declared them as illegal. In the absence of a free-riding argument, the theory of harm that ‘narrow’ parity clauses stifle intra-brand competition between different distribution channels and foreclose the market for the brokerage of hotel rooms through OTAs does not meet any justification. Additionally, the paper argues that even in the presence of free-riding, the transfer of wealth from hotels to OTAs is unjustified as ‘narrow’ parity clauses incentivise OTAs more than the risk they undertake.

Regulation of Narrow Price Parity Agreements in Multi-Sided Markets

The article discusses the regulatory regime of digital multi-sided markets. It analyzes narrow price parity clauses designed to prevent a showrooming by depriving the supplier of the right to offer lower rates on its own website than on the platform. In recent years, some EC countries have banned such agreements. It was justified by the perceived benefits of increased vertical competition between suppliers and platforms acting as their distributors. The paper considers the interaction between the supplier and a platform like Booking.com, in the presence of narrow price parity clauses and without them. It is shown that the bans of such agreements may have long-run consequences radically different from the original intentions of the regulator. The reason for this is the reaction of the platform suppressing vertical competition by intensifying competition between the former and the newly attracted suppliers (apartment owners). The resulting uberization of the industry complicates the traditional suppliers (hotels) reproduction processes and negatively affects the welfare of consumers. The inefficiency of the existing regulatory regime of digital multi-sided markets leading to concentration of revenues in the hands of transaction platforms suggest that there is an urgent need to form national platforms, whose function should be to support domestic suppliers, create industry infrastructure, etc…

Vertical restraints in an online world - the consumer perspective

This paper maps out some of the vertical restraints in the online environment that are particularly relevant from the consumer perspective. This article focuses on some of the most contentious vertical restraints that directly involve prices, are particularly relevant for online commerce and are harmful to consumers – resale price maintenance, price parity clauses, dual pricing and bans on price comparison websites. We look at how these vertical restraints have been analysed in the EU to date and where we should go from here from a consumer perspective. Notwithstanding this limited focus, other vertical restraints—especially on online sales, selective distribution systems, or non-compete obligations—can also have strong anti-competitive effects and harm (final) consumers.

Online platform price parity clauses: Evidence from the EU Booking.com case

Online platforms often impose Price Parity Clauses to prevent sellers from charging lower prices on alternative sales channels. We provide quasi-experimental evidence on the full removal of Price Parity Clauses in France in 2015 for hotels listed on Booking.com . Our analysis reveals significant price decreases in the short run, but a more limited effect in the medium run. However, hotels characterized by a more complex organizational structure decreased their prices more substantially. Overall, the intervention appears to have benefited a subset of consumers using Booking.com .

Designing Remedies for Digital Markets: The Interplay Between Antitrust and Regulation

Regulatory interventions aimed at promoting competition in digital markets face a challenge: how to design remedies that actually improve welfare? This Article helps provide an answer to this question. First, it maps out the frontier of remedy design: Part I.A summarizes antitrust and regulatory remedies imposed on digital companies over the past decades, while Part I.B reviews nineteen reports on competition in digital markets to identify proposals to advance antitrust or regulatory interventions. Part II, the core of the Article, builds on this review to propose a new, two-level framework for remedy design that integrates pro-competition antitrust and regulatory interventions as part of a single policy. First, at the substantive level, it develops a compounded error-cost framework that helps authorities choose between different remedies applicable to a given conduct: when policymakers accept higher risks of over-enforcement in deciding to intervene, they should compensate by taking lower risks of over-enforcement in remedy design, and vice-versa. Second, at the institutional level, the Article proposes that authorities consider separating three connected but different key activities in remedy design: (i) identifying harmful behavior; (ii) designing interventions; and (iii) monitoring and adapting remedies. It also outlines four criteria (legal mandate, need for technical expertise, relative risks of regulatory capture and overall administrative costs) that can help authorities allocate these tasks among different regulators. Part III concludes by applying this framework to seven types of conduct that Part I identified as potentially problematic: (i) discrimination, unfair treatment and self-preferencing; (ii) exclusivity contracts; (iii) tying or bundling; (iv) MFNs and other price parity clauses; (v) refusals to deal, limited interoperability and lack of data portability; (vi) exploitative or exclusionary terms of service; and (vii) nudges, sludges and other concerns around user interfaces.

What is ‘Competition Law’?—Measuring EU Member States’ Leeway to Regulate Platform-to-Business Agreements

Abstract If both national competition law and Article 101 TFEU apply to an agreement, the former must not set rules that are stricter than the latter. Member States remain free, though, to impose stricter rules if they are not classified as ‘competition law’. We analyse relevant jurisprudence by the English and French courts that have dealt with potential conflicts between, on the one hand, EU competition law and, on the other hand, the common law restraint of trade doctrine and the pratiques restrictives de concurrence under French commercial law. We develop criteria that allow (national) ‘competition law’ to be distinguished from similar regulatory interventions into agreements that pursue purposes distinct from Article 101 TFEU and which, therefore, must not be regarded as ‘competition law’. This article illustrates and elaborates on the challenges for the implementation of our approach by focusing on the ban on the use of parity clauses by hotel booking platforms in France, Austria, Italy, and Belgium. We map a possible way forward to prevent further regulatory fragmentation in the internal market with regard to the regulation of platform-to-business agreements.

What Is ‘Competition Law’? – Measuring EU Member States’ Leeway to Regulate Platform-to-Business Agreements

If both national competition law and article 101 TFEU apply to an agreement, the former must not set rules that are stricter than the latter. Member States remain free, though, to impose stricter rules if they are not classified as ‘competition law’. We analyse relevant jurisprudence by the English and French courts that have dealt with potential conflicts between, on the one hand, EU competition law and, on the other hand, the common law restraint of trade doctrine and the pratiques restrictives de concurrence under French commercial law. We develop criteria that allow (national) ‘competition law’ to be distinguished from similar regulatory interventions into agreements that pursue purposes distinct from article 101 TFEU and which, therefore, must not be regarded as ‘competition law’. This paper illustrates and elaborates on the challenges for the implementation of our approach by focusing on the ban on the use of parity clauses by hotel booking platforms in France, Austria, Italy and Belgium. We map a possible way forward to prevent further regulatory fragmentation in the internal market with regard to the regulation of platform-to-business agreements.

Search platforms: showrooming and price parity clauses

AbstractWe provide a model in which consumers search for firms directly or through platforms. Platforms lower search costs but charge firms for the transactions they facilitate. Platform fees raise the possibility of showrooming, in which consumers search on a platform but then switch and buy directly to take advantage of lower direct prices. In settings like this, search platforms like Booking.com have adopted price parity clauses, requiring firms to offer their best prices on the platform, arguing this is needed to prevent showrooming. However, despite allowing for showrooming in our model, we find that price parity clauses often harm consumers.

Narrow Price Parity Clauses and Restrictions of Competition

Bookings.com v Visita; with Case note by Dagne Sabockis