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 under antitrust law. European competition authorities have investigated especially hotel reservation platforms that use best price clauses.
It seems possible that the European Commission will use the revision of the VBER and of the Vertical Guidelines to clarify the competition law classification of best price clauses to restore the unity of the interpretation of EU competition law.
Two types of Best Price Clauses
It has to be distinguished between wide and narrow best price clauses.
Wide best price clauses oblige a seller on a platform (e.g. a hotel on a hotel reservation platform) to always offer the cheapest prices for customers on this platform. The respective seller is not allowed to offer cheaper prices either on third-party platforms or on its own website.
A narrow best price clause only prohibits the seller from selling the products for cheaper prices on its own websites (while it is allowed to sell for cheaper prices on other third-party platforms).
Theories of harm and wide best price clauses
In general, wide best price clauses are considered anti-competitive, at least if they are applied by a platform whose market share exceeds 30%.
Wide best price clauses can cause the following restrictions of competition:
- Best price clauses may restrict competition in the market of hotel reservation platforms. Best price clauses prohibit hotels to offer lower prices on other platforms. If the other platform providers lower the commission, hotels cannot pass on these cost savings in the form of lower prices to customers on these other platforms. This reduces the incentive for other platform providers to lower their commissions, because it does not make their platform more attractive to customers in the form of lower hotel prices.
- They can also lead to barriers to market entry. New providers of hotel reservation platforms would not be able to make their platform attractive for customers offering lower hotel prices.
- Best price clauses can restrict competition in the markets for hotel rooms. Hotels are not allowed to offer rooms for cheaper prices either on their own websites or on other third-party platforms. Not being able to offer cheaper prices on their own websites might therefore generally raise the price level on the market.
Theories of harm and narrow best price clauses
While some authorities consider only wide best price clauses problematic, the German Bundeskartellamt has also prohibited narrow best price clauses by hotel reservation platforms with market shares of more than 30%.
For the Bundeskartellamt, hotels that cannot offer cheaper prices on their own websites is sufficient to be deemed a restriction of competition. This might also impede them from offering cheaper prices on third-party platforms in the Bundeskartellamt’s opinion.
However, if the market shares of both, the platform and the hotel, do not exceed 30%, one can argue that best price clauses are block-exempted from the prohibition of cartels by the VBER. The German OLG Düsseldorf decided that a hotel must be regarded as a supplier, in the sense of the VBER, and that the platform is the buyer. Since the VBER generally allows restrictions of the supplier, best price clauses are block-exempted if the VBER applies.
However, if the market share threshold is exceeded, it is questionable if an individual exemption from the prohibition of cartels is possible. The Bundeskartellamt came to the conclusion, confirmed by the OLG Düsseldorf, that there is no evidence of efficiencies justifying best price clauses in case of the Booking and HRS platforms. The Bundeskartellamt alleges that best price clauses are not indispensable for avoiding free rider problems. Although a free rider problem might arise if hotels use the hotel reservation platform only for advertising, but offer cheaper prices on their own websites so that the customer will not make a reservation on the platform. As a consequence, the hotel would not have to pay commission to the platform. In the Bundeskartellamt’s opinion, however, the parties can solve this free rider problem by using a different price mechanism that does not only link the fees paid by the hotels for using the reservation platforms to the successful sale of hotel bookings on this platform.
Different approaches by European competition authorities and legislators
European competition authorities and legislators have chosen different approaches to deal with best price clauses.
Contrary to the Bundeskartellamt, the Italian, the Swedish and the Polish competition authorities only prohibit wide best price clauses. The Austrian and the French legislators try to tackle the issue by means other than competition law, namely the Law on Unfair Trade Practices in Austria and Civil Contract Law in France. The Italian legislator lately passed a law similar to the Civil Contract Law solution in France.
The different national approaches to best price clauses in the European Union are detrimental to both, the sellers (hotels) and the 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 revision of the VBER and of the Vertical Guidelines to clarify how best price clauses are to be dealt with under European competition law. The expert report “Competition policy for the digital era” already highlights that effects of best price clauses strongly depend on the particular effects of the market they are used on, suggesting a case-by-case analysis. Weak competition could justify the prohibition of wide and narrow best price clauses. In markets with vigorous competition, however, competition concerns should be limited to wide clauses.