Economy

Scrutiny of the online hotel booking sector by CCI: Here are the key takeaways

Updated : January 17, 2020 02:35 PM IST

The growth of this sector has drawn the spotlight on several new issues which focus primarily on the on-going practices in the sector.

All market participants in the online hotel booking sector are in effect providing intermediary services to two different sets of consumers.

In India, the affordability of internet data has ushered in deeper penetration of internet usage. Businesses today are increasingly going ‘online’, and one of the sectors which has witnessed a corresponding substantial growth has been the online hotel booking sector. This sector, according to a 2017 study, is expected to grow from $1.2 billion in 2015 to a projected figure of $ 4 billion by 2020.

The growth of this sector has drawn the spotlight on several new issues which focus primarily on the on-going practices in the sector. Some of these issues have been raised before the Competition Commission of India (CCI), involving allegations against two key market players in the online hotel booking sector i.e. Oravel Stays Private Limited (OYO) and MakeMyTrip India Pvt. Ltd. (MMT), under two separate information.

Broadly, all market participants in online hotel booking sector such as OYO, MMT, Yatra.com and Fab Hotels are in effect providing intermediary services / platforms to two different set of consumers viz., the hotels that use their services to sell their rooms to the consumers and the ultimate consumers who use these platforms to book rooms at the partner hotels. This creates a dual-sided market where the hotels, as well as the ultimate consumers, are availing the services of the intermediary platforms.

Case 1

RKG Hospitalities Pvt. Ltd. (RKG), in information filed against OYO before CCI, had alleged that OYO abused its dominant position through its conduct. It was alleged that OYO had included and enforced terms and conditions in its agreement with RKG, which were one-sided, unfair and discriminatory. These practices allegedly included unilateral modification of the structure of the hotel, disincentivising hotels on the basis of performance, setting up exclusive signage of OYO on hotels and barring the hotel from engaging with other online aggregators. The CCI vide its prima facie opinion did not find OYO to be dominant, it, however, examined the allegations of abuses by OYO and concluded that the allegations were not made out.

Determining the relevant market

The CCI, while determining the relevant market for assessing the conduct of OYO observed, that OYO provided services to hotels including – (i) access to identifiable brand recognition, (ii) access to existing distribution channels; and (iii) access to a compelling customer base. The CCI thus identified the business model of OYO as a franchise model. Based on the specific features and types of services provided by OYO, the CCI identified the relevant market as the market for “franchising services for budget hotels in India”.

Determining the dominance of OYO

While assessing the dominance of OYO in the identified relevant market, the CCI noted that OYO was a leading player in the relevant market, having a significant market share in terms of the number of hotels and rooms on its network. The CCI concluded that the relevant market for franchising services for the budget hotel was an emerging sector where the competition dynamics were still unfolding. The CCI ultimately concluded that although OYO was a significant player in the relevant market, the deterministic assessment of the market position of OYO was not possible.

Despite concluding that OYO was not dominant in the relevant market, the CCI ventured into an assessment of the conduct complained of in terms of Section 4 and concluded that allegations of abuse of dominance remained unsubstantiated.

Case 2

A subsequent information was filed by Federation of Hotels and Restaurant Association of India (FHRAI), before the CCI where it was alleged that MMT and OYO had collectively and separately abused their dominant position by indulging in predatory pricing, charging exorbitant commissions and by resorting to misrepresentations. Additionally, it was alleged that the MMT and OYO had entered into an agreement which had resulted in the exclusion of OYO’s competitors from listing on MMT. The CCI after reviewing the allegations, prima facie concluded that the allegations of abuse of dominance against MMT and allegation of anti-competitive agreement between MMT and OYO required investigation.

Determining the relevant market

The CCI, in contrast to its earlier decision in case 1, determined a broader relevant market in this matter. The CCI, based on the specific features and types of services provided by the intermediary platforms, concluded that market players like MMT only acted as an aggregator of hotels for the convenience of customers. It, therefore, determined the relevant market as a market for “online intermediation services for booking of hotels in India”.

Determining the dominance of MMT and OYO

Relying on the investor presentations made by MMT and GoIbibo, the CCI observed that MMT held a 63 percent market share in the online intermediation market for booking of hotels. The CCI, while holding that the market share could not be the sole factor for assessment of dominance, concluded that prima facie MMT could be held to be in a dominant position in the relevant market. The CCI further attributed the longstanding of MMT in the market for the above assessment.

The CCI in light of its prima facie determination directed a detailed investigation into the alleged conduct of MMT. Its prima facie observations while assessing the allegations were –

Restrictions of room and price parity imposed by MMT over the hotels were of the broad category of Across Platform Parity Agreements (APPAs) which could result in the removal of incentives for platforms to compete on the commission charged from hotels.
The allegation of charging of excessive commission from the hotels could not be determined at this stage as there was a lack of clarity over the market structure, entry conditions, the cost structure of platforms, etc.
Deep discounting could not be considered as an introductory scheme or aimed at building their network due to its long-standing presence in the market hence the allegation required investigation.

Consistent with its prima facie findings in case 1, the CCI did not find OYO to be dominant in the relevant market. The CCI noted that the market conditions did not appear to have changed since July 2019 to warrant a different delineation of the relevant market.

Anti-competitive agreements amongst OYO and MMT

It was also alleged in case 2 that the agreement between MMT and OYO, which in effect led to the exclusive listing of OYO hotels on MMT in exclusion of its competitors amounted to an anticompetitive agreement. The CCI prima facie concluded that these allegations required a detailed investigation to ascertain if the effects of the commercial agreement had caused the exclusion of OYO’s competitors from MMT’s platform.

Key takeaways from the CCI’s decisions

CCI’s evolving understanding of the Tech-based industries: The CCI appears to be adopting a more conscious approach in cases involving online market places. The CCI appears to be guided by the realities and dynamics of technology-driven sectors and industries and has been careful in its assessment of cases particularly dealing with dominance and abuse, even at the prima facie stage. This is evident from its observations for instance, in both case 1 and case 2 about the market position of OYO and its conduct, which led to the rejection of the allegations in case 1.

Market definition: The observations made by the CCI in case 1 and case 2, with regard to the definition of the relevant market suggest that the CCI understands that there is a certain level of overlap between the services being offered by OYO and MMT. The CCI however, for the purposes of assessment of alleged conduct made a clear distinction between the two types of business models, without going into the discussions on the overlaps and its potential impact on the assessment of conduct.

Unilateral rights and justifications: In abuse of dominance cases as well, dealing with unilateral rights, the CCI has taken into account reasonable commercial justifications in its assessment, particularly with respect to the dynamism of the technology-driven markets that are still emerging, such as that of OYO. For instance, in case 1, the CCI considered the maintenance of standard benchmark quality and consumer satisfaction as reasonable justifications.

Deep discounting: The CCI has considered the objectives for offering deep discounts and a period of presence in the market of the player in the market, as relevant in the assessment of this issue. While introductory offers or operational reasons such as network building might be justifiable in the case of new entrants, it may not necessarily be justifiable in cases of established players. Additionally, the CCI has also considered factors such as the cost structure of the players and the hotels, prices charged by the hotels and discounts offered by the players, as relevant factors for assessment of the issue of deep discounting.

APPAs: The treatment of such parity restrictions, also called retail Most Favoured Nation (MFN) clauses would be analysed based on the foreclosure effects, such as concentration or enhanced entry barriers to the detriment of the consumers. Additionally, while narrow restrictions might be permissible subject to other factors, broad or wide restrictions are more likely to be treated as anti-competitive by the CCI, subject to the market power and their impact under Section 3(4) and Section 4 of the Act.

Excessive commissions: CCI has maintained its position regarding excessive pricing/commission with the view that there are no clear standards to determine what would be ‘excessive’ or ‘fair’. The factors that are likely to play a role in the assessment of such ‘fair’ price would be the market structure, the entry conditions and the cost structure of the platforms, etc. in the market.

Conclusion

The market assessment of the online hotel booking sector by CCI provides a useful albeit limited insight into the CCI’s current thought process on these issues in the context of technology-driven sectors.

Considering that these sectors are in their development phase in India and are being studied by the CCI separately, the outcome of a thorough investigation and inquiry is likely to throw light on the approach that the CCI may adopt in the future and its likely impact on the competition and consumers.

Abhay Joshi is Associate Partner at Economic Laws Practice.