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Platform monopolization by narrow-PPC-BPG combination: Booking et al

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  • Wals, Francisca
  • Schinkel, Maarten Pieter

Abstract

The price parity clauses (PPCs) that online booking platforms impose have come under antitrust scrutiny. Wang and Wright (2017) show how by preventing showrooming, a narrow PPC can reduce search costs and benefit consumers under between-platform competition. In response to having to give up its wide PPC to hotels, Booking.com emphasized its best price guarantee (BPG) to customers. We observe that a narrow PPC combined with a (low hassle costs) BPG leaves only Wang and Wright’s Price Parity and Monopoly Equilibrium (PPME), in which consumers are worse off than with no platform operating at all. A more-efficient (incumbent) platform can deter entry with the BPG, while the narrow PPC eliminates competition from direct sales channels. An equally-efficient platform could enter and compete consumer prices down because of the existence of hassle costs, yet this equilibrium is fragile to network effects. If sellers have incentives not to price differentiate between platform(s) and their direct sales channel, a narrow PPC alone suffices to sustain the PPME in both cases. The detrimental pricing contract combination that we point out calls for different platform competition policy.

Suggested Citation

  • Wals, Francisca & Schinkel, Maarten Pieter, 2018. "Platform monopolization by narrow-PPC-BPG combination: Booking et al," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 572-589.
    • Handle: RePEc:eee:indorg:v:61:y:2018:i:c:p:572-589
    DOI: 10.1016/j.ijindorg.2018.03.006
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    References listed on IDEAS

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    1. Hunold, Matthias & Kesler, Reinhold & Laitenberger, Ulrich & Schlütter, Frank, 2018. "Evaluation of best price clauses in online hotel bookings," International Journal of Industrial Organization, Elsevier, vol. 61(C), pages 542-571.
    2. Pinar Akman & D. Daniel Sokol, 2017. "Online RPM and MFN Under Antitrust Law and Economics," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 50(2), pages 133-151, March.
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    5. Hunold, Matthias & Kesler, Reinhold & Laitenberger, Ulrich & Schlütter, Frank, 2017. "Evaluation of best price clauses in hotel booking," ZEW Discussion Papers 16-066, ZEW - Leibniz Centre for European Economic Research, revised 2017.
    6. Andre Boik & Kenneth S. Corts, 2016. "The Effects of Platform Most-Favored-Nation Clauses on Competition and Entry," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 105-134.
    7. Morten Hviid & Greg Shaffer, 1999. "Hassle Costs: The Achilles' Heel of Price‐Matching Guarantees," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 489-521, December.
    8. Belton, Terrence M., 1987. "A model of duopoly and meeting or beating competition," International Journal of Industrial Organization, Elsevier, vol. 5(4), pages 399-417.
    9. Benjamin Edelman & Julian Wright, 2015. "Price Coherence and Excessive Intermediation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(3), pages 1283-1328.
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    Cited by:

    1. Hunold, Matthias & Kesler, Reinhold & Laitenberger, Ulrich, 2018. "Hotel rankings of online travel agents, channel pricing, and consumer protection," ZEW Discussion Papers 18-059, ZEW - Leibniz Centre for European Economic Research.
    2. Sean Ennis & Marc Ivaldi & Vicente Lagos, 2023. "Price-Parity Clauses for Hotel Room Booking: Empirical Evidence from Regulatory Change," Journal of Law and Economics, University of Chicago Press, vol. 66(2), pages 309-331.
    3. Matthias Hunold & Reinhold Kesler & Ulrich Laitenberger, 2020. "Rankings of Online Travel Agents, Channel Pricing, and Consumer Protection," Marketing Science, INFORMS, vol. 39(1), pages 92-116, January.
    4. Joan Calzada & Ester Manna & Andrea Mantovani, 2022. "Platform price parity clauses and market segmentation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 31(3), pages 609-637, August.
    5. Morgane Cure & Matthias Hunold & Reinhold Kesler & Ulrich Laitenberger & Thomas Larrieu, 2022. "Vertical integration of platforms and product prominence," Quantitative Marketing and Economics (QME), Springer, vol. 20(4), pages 353-395, December.
    6. Andrea Mantovani & Claudio Piga & Carlo Reggiani, 2019. "Much ado about nothing? Online platform price parity clauses and the EU Booking.com case," Economics Discussion Paper Series 1909, Economics, The University of Manchester.
    7. Sviták, Jan & Tichem, Jan & Haasbeek, Stefan, 2021. "Price effects of search advertising restrictions," International Journal of Industrial Organization, Elsevier, vol. 77(C).

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    More about this item

    Keywords

    Platform; Price parity clause; Best price guarantee; Entry deterrence; Collusion;
    All these keywords.

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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