Antitrust assessment of best price clauses on hotel reservation platforms
In the past, various European competition authorities have dealt with the legal admissibility of best price clauses in antitrust law.. The European competition authorities have in particular investigated hotel reservation platforms that use best price clauses.
It seems possible that the European Commission is using the revised VBER and vertical directives to clarify the competition law classification of best price clauses in order to restore the unity of interpretation of EU competition law.
Two types of best price clauses
A distinction must be made between broad and narrow best price clauses.
Broad best price clauses oblige a seller on a platform (for example a hotel on a hotel reservation platform) to always offer the cheapest prices to customers of this platform. The respective seller is not allowed to offer lower prices on third party platforms or on their own website.
A best price restrictive clause only prohibits the seller from selling the products at lower prices on their own websites (while they are allowed to sell at lower prices on other third party platforms).
Theories of harm and broad best price clauses
In general, broad best price clauses are considered anti-competitive, at least if they are enforced by a platform with a market share exceeding 30%.
Broad best price clauses can lead to the following restrictions of competition:
- Best price clauses can restrict competition in the hotel reservation platform market. Best price clauses prohibit hotels from offering lower prices on other platforms. If other platform providers lower the commission, hotels cannot pass these savings on in the form of price reductions to customers of those other platforms. This reduces the incentive for other platform providers to lower their commissions, as it does not make their platform more attractive to customers in the form of lower hotel prices.
- They can also create barriers to entry into the market. New hotel reservation platform providers would not be able to make their platform attractive to customers with lower hotel rates.
- Best price clauses can restrict competition in the hotel room markets. Hotels are not permitted to offer lower priced rooms on their own websites or other third party platforms. Not being able to offer cheaper prices on their own websites could therefore generally increase the price level in the market.
Theories of Injury and Best Price Covenants
While some authorities consider only broad best price clauses to be a problem, the German Bundeskartellamt has also banned narrow best price clauses for hotel booking platforms with market shares of over 30%.
For the Bundeskartellamt, hotels which cannot offer lower prices on their own websites are sufficient to be considered as a restriction of competition. According to the Bundeskartellamt, this could also prevent them from offering cheaper prices on third-party platforms.
However, if the market shares of the two, the platform and the hotel, do not exceed 30%, it can be argued that the best price clauses are exempted by category from the ban on cartels by the VBER. The German OLG in DÃ¼sseldorf has decided that a hotel should be considered a supplier, within the meaning of the VBER, and that the platform is the buyer. Since VBER generally allows vendor restrictions, best price clauses are exempt by category if VBER applies.
However, if the market share threshold is exceeded, it is questionable whether an individual exemption from the ban on cartels is possible. The Bundeskartellamt came to the conclusion, confirmed by the OLG DÃ¼sseldorf, that there is no evidence of effectiveness justifying better price clauses in the case of the Booking and HRS platforms. The Bundeskartellamt alleges that the best price clauses are not essential to avoid free rider problems. Although a stowaway problem can arise if hotels use the hotel booking platform for advertising purposes only, but offer cheaper prices on their own websites so that the customer does not make a reservation on the platform. As a result, the hotel would not have to pay any commission to the platform. In the view of the Bundeskartellamt, however, the parties can resolve this stowaway problem by using a different pricing mechanism which does not just tie the fees paid by hotels for using the reservation platforms to the successful sale of reservations. of hotels on this platform.
Different approaches of competition authorities and European legislators
European competition authorities and legislators have chosen different approaches to deal with best price clauses.
Unlike the Bundeskartellamt, the Italian, Swedish and Polish competition authorities only prohibit broad best price clauses. Austrian and French lawmakers are attempting to address the issue through means other than competition law, namely the Unfair Commercial Practices Act in Austria and the Civil Contract Law in France. The Italian legislator recently adopted a law similar to the solution of civil contract law in France.
The different national approaches to best price clauses in the European Union are detrimental to both sellers (hotels) and platforms. They jeopardize the unity of the EU legal system and lead to legal uncertainty.
Therefore, it is crucial that the European Commission uses the revised VBER and vertical guidelines to clarify how best price clauses should be treated under EU competition law. The expert report â€œCompetition policy in the digital ageâ€ already underlines that the effects of best price clauses strongly depend on the particular effects of the market in which they are used, suggesting a case-by-case analysis. Weak competition could justify banning broad and narrow best price clauses. In fiercely competitive markets, however, competition concerns should be limited to broad clauses.