In the competitive landscape of online marketplaces, it can be difficult to differentiate your website from others. Some accommodation marketplaces use a contractual provision called a ‘price parity’ clause. This type of clause generally requires the accommodation provider to offer the best price to online travel sites. As a result, the room rates advertised are the lowest available, which prevents consumers negotiating better deals directly with the accommodation provider. We explain the Australian Competition and Consumer Commission’s (ACCC) recent investigation into how some hotel booking websites went about achieving their competitive pricing.
How Can Businesses Meet the Desire for Low Prices?
We are familiar with the promise retailers make that if a customer can find a lower price elsewhere within certain criteria and time frames, the business will honour that price. One of the usual conditions for exercising this ‘price matching’ guarantee is that the comparative price cannot be available online only. Online suppliers may have lower overhead operating costs, which allows them to offer lower prices. Also, online supporters can exercise greater flexibility in varying their prices and because those prices are hard to verify, committing to match them is risky.
Online hotel marketplaces use parity clauses in their agreements with accommodation providers to guarantee the best or lowest price. Such a condition prevents hotels from offering their rooms through other channels, including through the hotel directly, at a lower rate. The contracts often also require the hotel make all its rooms available through the one marketplace, or at least not offer rooms through other marketplaces.
These contractual restrictions reduce competition among distributors, online marketplaces, other online and offline channels and the hotel themselves. They remove the ability of the accommodation providers to offer its services at lower prices elsewhere, limiting consumers’ choices and ability to negotiate a better deal for themselves.
What Did the ACCC Decide?
After a period of investigation, Expedia and Booking.com agreed to amend their contracts to no longer include parity clauses restricting accommodation providers from offering better prices and availability. Consequently, hotels can offer deals through different marketplaces, as well as negotiate with customers through their own off-line channels, such as telephone bookings and walk-ins. However, the ACCC allowed the restriction that prevents hotels from making rooms available at lower prices on their own websites.
If you run a marketplace, you are likely familiar with the concern that two parties might find each other through your website and then make arrangements between themselves, circumventing the marketplace and not paying commission or other remuneration. In this case, a ‘narrow’ parity clause prevents hotels from listing rooms on marketplaces to attract customers initially, but then offer those rooms at lower prices directly on their websites.
What are the Implications for Marketplaces?
If you operate an online marketplace and your terms and conditions contain restrictive rules on suppliers listing on your marketplace, you should consider carefully whether any of those rules may be considered anti-competitive. In particular, any rules that might restrict a supplier from offering a better or different price, product or service elsewhere, such as a competing marketplace or another channel (including directly through their website).
A marketplace requires rules to govern the behaviour of suppliers listed on its site. It’s important to formally document these in a written agreement and having a lawyer review those rules for any anti-competitive terms. If you have any questions or need assistance setting up your online marketplace, get in touch with our online business lawyers on 1300 544 755.
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