On 19 May 2014, the Italian Competition Authority (“ICA”) announced that it had launched an investigation into online travel agencies Booking.com BV and Expedia Inc regarding their contracts with hotels and whether these contracts had violated competition laws. This investigation follows a formal agreement between the UK competition regulator and the same two companies in January where the companies agreed to commitments regarding discount rates for hotel rooms.
If the ICA investigation follows a similar reasoning to the UK investigation, the regulators concerns regarded the inability of smaller online travel agencies to offer discounts allegedly due to clauses known as most favoured nation (“MFN”), price parity or best price clauses. These obligate the hotel chain or operator in question to always offer their best price to a particular online travel agency. The UK regulator considered MFN clauses favoured existing powerful market participants (Expedia and Booking.com in that case) by dampening price competition. This in turn acted as a barrier to entry deterring new competitors.
The contracts between these travel agencies and hotel chains have not only come under scrutiny in the UK and Italy but again in Germany. We also reported in March how the German Federal Cartel Office prohibited leading German hotel portal company HRS from applying a MFN clause which required HRS’s hotel partners to offer their lowest rates to HRS’s booking website.
Perhaps the current regulatory tide turning against the use of MFN clauses by powerful market participants in some EU Member States may result in regulatory action on this issue by the European Commission to create a uniform approach. Any online retailer or market place considering implementing or retaining such clauses in their agreements may wish to assess their position and the commercial risk in its conclusion, especially if they occupy a significant market share.
The current ICA investigation is set to conclude in July 2015.