CCI Imposes Penalties on Indian OTA Makemytrip And Budget Hotel Franchise OYO: A Comment
The Competition Commission of India (CCI) has found MakeMyTrip, Goibibo (MMT-Go), an online travel agency (OTA), to have contravened Section 4 of the Competition Act, 2002 (Act) and abused its dominant position in the “market for online intermediation services for booking of hotels in India” by:
(i) Imposing price parity and room parity on hotel partners, and
(ii) Misrepresenting the booking status of delisted hotel as “sold out”
Further, MMT-Go’s agreement with Oravel Stays Private Limited (OYO) (engaged in facilitating and marketing budget hotels by co-branding) which required MMT-Go to de-list the properties of Fabhotels and Treebo (OYO’s competitors) from its platform was considered as an anticompetitive agreement amounting to ‘refusal to deal’ under Section 3(4) of the Act by the CCI.
MMT-Go and OYO are collectively referred as Opposite Parties.
CCI’s Investigation Order
The CCI had directed investigation by the Director General (DG) on information against MMT-Go and OYO alleging price parity, deep discounting and other exclusionary conduct filed by Federation of Hotel & Restaurant Associations of India (FHRAI) , Casa2 Stays Private Limited (FabHotels) and Ruptub Solutions Private Limited (Treebo). FHRAI, FabHotels, and Treebo are collectively referred to as the Informants.
CCI’s Final Order
CCI’s order’s salient features are discussed below:
The DG asserted the relevant market to be “market for online intermediation services for booking of hotels in India” which are not substitutable/interchangeable by offline booking, or other online distribution channels such as search engines or other meta search service providers. According to the DG, the one stop solution of “Search, Compare and Booking” (SCB Functionality) provided by OTAs made them unique service providers.
The Opposite Parties argued that the relevant product market is not wider than the overall hotel booking market (which includes, offline, online and walk-in bookings) and not narrower than online hotel booking market (which includes booking through search engines and hotels’ own websites in addition to booking through OTAs). The Opposite Parties advanced the following arguments:
(i) Online and offline are a part of the same relevant market as both are used by end-consumers alternatively to make hotel bookings
(ii) Both end-consumers and hotels multi-home between various channels for hotel booking
(iii) The sample size of 21 hotels relied upon by the DG was insufficient to draw any conclusion.
(iv) The SCB Functionality offered by OTAs does not make them unique since other online mediums (such as metasearch) also provides search and compare functions using which the end-consumer can directly book using the hotel’s website
The CCI upheld the DG’s definition of relevant market as the “market for online intermediation services for booking of hotels in India” for the following reasons:
(i) OTAs are multisided platforms catering to two different users - (i) end consumers, and (ii) hotel partners. Since the abuse has been reported by hotel partners, the substitutability of services has to be analysed from the viewpoint of hotels and not end-users.
(ii) OTAs provide much better visibility to the hotels which is not the case with any other platform. OTAs also provide seamless SCB Functionality. Accordingly, hotels rely extensively on OTAs
(iii) OTAs are also distinct from other online channels such as search engines since search engines do not allow selling of inventory. Further, the combination of search engines and hotel’s own websites is not a viable alternative since majority of the hits for hotels returned by search engines direct to OTAs and not the websites of hotels
(iv) End-users who prefer booking hotels over the internet form a distinct consumer base than the users who prefer walk-in bookings
Based on the data of “stayed room nights” (and not the gross booking revenue) of various OTAs, the CCI concluded MMT-Go to be in a dominant position.
Abuse of dominant position
The CCI observed that the parity obligations were ‘wide’ (i.e., they constrained price on all other platforms including the hotel’s own website) as opposed to ‘narrow’ (which is limited to the hotel’s own website). Such wide parity conditions coupled with deep discounts and exclusivity conditions helped MMT-Go to retain and further increase its user network, and impeded the competitive process between OTAs by making it impossible for other OTAs to charge lesser commission. Accordingly, the CCI concluded that MMT-Go abused its dominant position.
Vertical restraints – refusal to deal
The CCI concluded that the agreement between MMT-Go and OYO to delist Treebo and FabHotels from MMT-Go amounted to refusal to deal which was in contravention of Section 3(4)(d) of the Act.
The CCI imposed monetary penalties of INR 223.48 crore and INR 168.88 crore on MMT-Go and OYO respectively (5% of their relevant turnover). The CCI also directed MMT-Go to:
(i) remove parity obligations and exclusivity conditions,
(ii) formulate appropriate listing terms for providing fair, transparent and non-discriminatory access, and
(iii) providing transparent disclosures about de listed properties
The CCI’s indepth analysis of the relevant market, and MMT-Go’s dominant position while finding abuse of dominant position by MMT-Go, demonstrates the CCI’s evolved approach in dealing with technology-driven new age markets. However, the CCI’s finding of vertical agreement between MMT-Go and OYO leading to appreciable adverse effect on competition (AAEC) seems quite theoretical. In terms of the framework of Section 3(4) of the Act, the onus to prove AAEC is on the CCI. While the CCI has itself identified that the harm to competition on account of an anticompetitive vertical agreement should not only be adverse but also appreciable, the CCI has not even assessed the market share of Treebo and Fabhotels for analysing the harm to competition on account of denial of market access to these entities. The CCI’s assessment is merely based on a rudimentary argument that such denial was to an important channel of distribution through foreclosure.
Be that as it may, the nuanced order is a positive sign indicative of its intent to understand and continue close scrutiny of digital markets going forward.
[Anisha Chand and Tanveer Verma are Partner and Senior Associate in the competition team of Khaitan & Co. respectively.]