HONG KONG, 1 April 2020: Hong Kong’s competition watchdog will consider proposals that will level the playing field and ensure three major online travel agencies end the practice of locking accommodation providers into parity clauses that hinder market competition.
The Competition Commission confirmed, Tuesday, it has commenced a consultation process on the commitments offered by three primary online travel agents (OTAs), namely Booking.com, Expedia.com and Trip.com.
The proposed commitments aim to address the Commission’s concerns over specific parity clauses in the OTAs’ agreements with accommodation providers (1) dealing with prices, conditions and room availability.
The Commission ruled that in Hong Kong “that may harm competition, potentially in “contravention of the First Conduct Rule of the Ordinance.”
The existing clauses require accommodation providers in Hong Kong to always give the OTA the same or better terms as those they offer in all other sales channels, as regards room prices (wide price parity), room conditions (wide conditions parity) and/or room availability (room availability parity).
The Commission believes these clauses could soften competition among OTAs, as well as hindering the entry and expansion by new or smaller OTAs which in turn would deprive consumers of the benefits of effective competition.
In response to the Commission’s investigation, the three OTAs have offered commitments to remove the parity clauses in their existing and future contracts with accommodation providers.
The Commission considers that the “proposed commitments are appropriate to address its concerns and it, therefore, proposes to accept them.”
However, the Commission noted that interested parties could submit representations on the proposed commitments, including the Commission’s proposed acceptance the commitments. Submissions must be presented by the deadline 1800 on 14 April 2020.
The Commission will consider all representations received by the deadline, which will be posted on its website, before making its decision on whether to accept the proposed commitments.
1 “Accommodation providers” include hotels, guest-houses, bed and breakfasts, or any other type of accommodation service provider that supplies rooms in Hong Kong and enters into a contract with an OTA.
(Source: Competition Commission)
Questions and Answers: Proposed Commitments by OTAs
Q: What are parity clauses and how do they work in the accommodation bookings market?
A: Parity clauses, also known as most-favoured-nation (MFN) clauses, are terms which may apply in the contract between an online travel agent (OTA) and an accommodation provider.
Accommodation providers enter into contracts with OTAs to enrol on the OTAs’ platforms, and the OTAs then sell rooms on behalf of the providers. The accommodation providers set the room prices to be displayed to consumers on the OTAs’ platforms and pay the OTAs an agreed commission for each sale.
The parity clauses involved in this case are as follows:
Wide price parity has the effect that the accommodation provider always has to give the OTA the same or better price as the prices it offers or applies across all other sales channels (including the accommodation provider’s own offline sales channels and other OTA platforms).
Wide conditions parity has the effect
that the accommodation provider always has to give the OTA the same or better
terms and conditions as those it offers or applies across all other sales
channels (including the accommodation provider’s own offline sales channels and
other OTA platforms).
Room availability parity has the effect
that the accommodation provider always has to give the OTA the same or better
room availability as those it offers or applies across all other sales
channels.
Q: What are the Competition Commission’s (Commission) concerns with these
parity clauses arising from its investigation?
A: The Commission’s concerns with such parity clauses are that a Hong
Kong accommodation provider is unlikely to give a better room price, better
room conditions or better room availability to a new OTA or one which is
willing to accept a lower commission from the accommodation provider on room
sales. This is because the accommodation provider would then have to offer a
better room rate/conditions/room availability to the OTA, which benefits from
the parity clause(s). In turn, this may have the potential effect of reducing
the incentive of OTAs to offer lower commission rates in the first place. As a
consequence, buyers of accommodation services, such as hotel guests, possibly
may not benefit from lower and more varied room rates.
Q: What are commitments under section 60 of the Competition Ordinance?
A: Under section 60 of the Ordinance, the Commission may at any stage accept a commitment to take any action or refrain from taking any action from parties under investigation, where the Commission considers it appropriate to address its concerns about a possible contravention of a competition rule.
If the Commission accepts a commitment, it may agree to terminate its investigation and not to bring proceedings in the Competition Tribunal regarding the matters covered by the commitments, or terminate them if it has already brought proceedings. The Ordinance does not require parties offering commitments to make any admission of a contravention. If a person fails to comply with the commitment, the Commission may seek to enforce it in the Tribunal.
Q: What
commitments have been given by Expedia.com, Booking.com and Trip.com?
A: The relevant legal entities of Expedia.com, Booking.com and Trip.com
have agreed to remove wide price parity, wide conditions parity and room
availability parity terms (to the extent that they apply to other OTAs and
offline channels) from their respective existing and future contracts with
accommodation providers in Hong Kong.
Q: What are the benefits of the commitments to consumers, Hong Kong accommodation providers and others?
A: Consumers
The intended purpose of the proposed commitments is to seek to ensure that there is competition on room prices, room conditions and room availability between each of the Parties as well as between the Parties and other OTAs. The Commission expects that the commitments may, therefore, result in consumers seeing greater competition and variation in, for example, Hong Kong hotel prices across different OTA platforms.
Hong Kong accommodation providers
Hong Kong accommodation providers will also have greater bargaining power in their negotiations with OTAs. Without the parity restrictions, accommodation providers could offer better rates or conditions or room availability to a particular OTA in return for a lower commission. This may, in turn, improve rates, conditions and/or room availability to the benefit of consumers.
New OTAs
A new OTA wishing to enter the market could also potentially benefit in these circumstances, in the sense that it could accept a lower commission from accommodation providers in return for better rates, conditions or room availability than those of its competitors. Consumers would, in turn, benefit from the entry of new OTAs into the market.
