Contravention Order Against Mmt-Go and Oyo: An Analysis
In recent times CCI has been in action taking serious consideration on Anti-competitive engagements of companies to hamper the competitive features of the Indian Market. Recently the CCI has been very discrete and passed orders against a Trio of companies which requires noteworthy consideration for its work well done. On 19-10-2022 the Competition Commission of India has passed an order against the (MMT-GO (MakeMyTrip- Goibio) & OYO slapping a penalty of 5% of their relevant turnover Rs.233.48 crores and Rs168.8 crores respectively.
FACTS OF THE CASE
The Commission has imposed monetary as well as behavioural sanctions on MMT-Go (MakeMyTrip and GoIbibo) for abusing its dominant position and also for having an anti-competitive arrangement with OYO (Oravel Stays Limited). A monetary penalty is also imposed on OYO for its anti-competitive arrangement with MMT-Go vide which MMT-Go delisted the competitors of OYO from its online portals in 2018. It’s for violation of sec-27 of the Competition act of India. Sec-27 explains about the “Under section 27(b), the CCI can impose a penalty of up to 10% of the average turnover for the past three preceding financial years. In the case of a cartel, the penalty can extend to up to three times the profits or 10% of average turnover, for each year the cartel has existed, whichever is higher”. As per the case filed by the Federation of hotel & restaurant association of India (FHRAI) against MMT-GO & OYO for contravention of sec-3& 4 of the act. ON 28-10-2019 the commission passed an order for investigation on the matter against MMT-GO & OYO under Sec-4 of the Competition act (for alleged abuse of dominant position) for their alleged commercial arrangement to delist the competitors of OYO namely fab hotels and Treebo from the online portal list of MMT-Go & OYO.
Subsequently, FHRBB & Casa2 Stays Pvt. Ltd (Fab hotels) & Rup tub Solutions Pvt. Ltd (Treebo) under their request has been added as a party to the case against the MMT-GO& OYO. This is just an introduction about the case lets see in brief about the actions and contentions taken by the parties to support its stand for the offences charged against them.
The parties had their contentions against each other and such contentions are discussed in brief to understand their actions and its purpose behind performing.
The contentions against MMT-GO &OYO by the FHRAI & CASA2 Hotels.
• Price Party Agreement & Predatory Pricings; where the price of hotel rooms can be less than the “average room rate” which is the industry base standard for the rooms.
• As Fab hotels, Treebo did not agree to such terms and to pay exorbitant commission brokerage charged later.
• Further another issue is MMT-GO& OYO have entered into confidential commercial agreements wherein MMT-GO has agreed to give preferential treatment to OYO on its platforms leading to denial of access to TREEBO & FABHOTELS.
• One of the often-used terms of “Relevant Product Market” parties were very concentrated on this term and justified their acts which fall under this broader percept. The “relevant product market in the case is the market for online intermediation services for booking hotels in India”.
• The contentions were the MMT-GO economists report that the market is not wider rather than the narrower market. The commission finds that there are not much of distribution channels as argued by MMT-GO to be constraining their businesses.
• The commission also finds that the alleged parties engaging in abusive conduct within sec-4 of the act only attracted by the company with a dominant position in the relevant market. The commission thus doesn’t accept the statements of the MMT-GO.
• Another concept is Platform Markets where the competitors of the MMT-GO come under this term. The commission observed that deep discounts were ordered in the platform market to establish network effects. But it was understood that since MMT-GO has been found in dominant position in the relevant market and been in business since 2000 and this practise is followed only for the sole aim of building network and develop the business.
• The diversity of platform markets and different network effects in their pricing strategy so different approaches were handled by different companies. One size approach doesn’t fit all. These were the key factors of contentions against and the commission’s report explained it in brief and passed the order based on the report of DG.
• Based on an in-depth assessment, the Commission found that the deep discounts and parity conditions, in conjunction, create an ecosystem that reinforces MMT-Go’s dominant position in the relevant market.
• According to DG’S SSNIP test to verify the contention of the relevant market. The services offered by OTA are homogenous and consumers to access throughout the country and the term relevant market defined as “market for online intermediation services for booking hotels in India”.
• The DG also relied upon German Bunderskartellamt’s HRS decision and Priceline/Momonda case stating the market analysis contained in EU regulatory decision. MMT-GO criticised this theory that Indians are price sensitive than EU consumers so this theory won’t apply in this case.
• Firstly, it helps MMT-Go to retain and further increase its network of users/travellers, who would increasingly use the platform for availing the best deals.
• Secondly, it impedes the competitive process between OTAs by limiting the competitive levers/instruments at the disposal of other portals who, for instance, cannot get better prices from hotels by offering lower commission rates.
• Thirdly, the consequent adverse effect on sale of rooms through other platforms/channels and their user bases, further accentuates the dependence of hotels on MMT-Go as well as the bargaining power imbalance that already exists between MMT-Go and its hotel partners.
• Fourthly, the increased sales through MMT-Go may lead to unilaterally determined higher commissions charged by it, giving it the ability to also pass on discounts which are admittedly funded through these commissions, which may adversely impact the prices at which the hotel rooms are being offered to end-consumers. The conduct of MMT-Go was thus, found to be in contravention of Section 4(2)(a)(i) read with Section 4(1) of the Act.
INTERPRETATION ON COMMISSIONS REPORT
From the Submissions from the MMT-GO, OYO & Faab Hotels and Treebo and FHRAI and along with the DG’S Report the commission came to an understanding about the market practices adopted by the Defendants in this matter and the commission found the below points valid.
1. The Commission, in its prima facie order, had noted that the Across Platform Parity Agreements (APPAs), popularly referred to as ‘retail Most-Favoured Nation (MFN) clauses, are stipulations where the sellers guarantee an online selling platform term, price and/or non-price, that are at least as favourable as those granted to any other platform, thus ensuring the former a competitive advantage over its competitors. By securing such favourable terms, the platforms attempt to guarantee the best available price and/or terms for a given product to its final consumers.
2. It is also noted that APPAs may result in the removal of the incentive for platforms to compete on commissions they charge from hoteliers, may inflate the commissions and the final prices paid to the consumers and may also prevent the entry of new low-cost platforms. Though the magnitude of the anti-competitive effects of these agreements, inter alia, will depend on the market power of the platform, given the dominance of MMT-Go, such parity restriction was directed to be investigated to gauge its impact under Section 3(4) as well as Section 4 of the Act.
3. The Commission finds that the deep discounts, exclusivity condition and parity conditions, in conjunction, create an ecosystem that reinforces MMT-Go’s dominant position in the relevant market.
a) Firstly, it helps MMT-Go to retain and further increase its network of users/travellers, who would increasingly use the platform for availing the best deals.
b) Secondly, it impedes the competitive process between OTAs by limiting the competitive levers/instruments at the disposal of other portals who, for instance, cannot get better prices from hotels by offering lower commission rates.
c) Thirdly, the consequent adverse effect on sale of rooms through other platforms/channels and their user bases, further accentuates the dependence of hotels on MMT-Go as well as the bargaining power imbalance that already exists between MMT-Go and its hotel partners.
d) Fourthly, the increased sales through MMT-Go may lead to unilaterally determined higher commissions charged by it, giving it the ability to also pass on discounts which are funded through these commissions, which may adversely impact the prices at which the hotels rooms are being offered to end-consumers.
4. Parity terms imposed by MMT-Go cannot be justified on the ground that it is purportedly an ‘industry practice’. It is important to appreciate that the effect and implications of a conduct indulged in by a dominant platform on its users and competition in the relevant market is fundamentally different from when a smaller insignificant player does it. MMT-Go being the largest OTA in the relevant market, presence on it is essential for hotels to access online customers for both sale and discoverability. Thus, while a hotel can choose to be on other smaller platforms based on the terms of contracts they offer, the same is not possible with MMT-Go hotels.
5. The Commission in its order dated 28.10.2019 observed that deep discounts are often offered in platform markets to establish network effects. The Commission, however, further observed that since MMT-Go has been prima facie found to be in a dominant position in the relevant market and have been in business since the year 2000, such practice may not be introductory and solely aimed at building the network. This issue was thus directed to be investigated.
6. In cast with a duty to ensure healthy and fair competition in the markets, and not just to ensure the survival of players. The survival of players is the means through which such competition is ensured, promoted and sustained. The explosion of online commerce has changed the dynamics of consumer preferences and transactions. As a market regulator, it is thus imperative that the competition regulator ensures that all stakeholders get an opportunity to compete on merits and get a fair chance to be part of digital commerce.
7. Further, the impugned exclusion has not only affected FabHotels and Treebo branded hotels, but also those budget hotels which were availing some logistic support from them, while operating as independent hotels. Such an impugned arrangement between MMT-Go and OYO left these budget hotels with no option but to disassociate with these franchisees and necessarily engage with OYO, if they wish to avail franchisee services or any other logistics support from a consumer-recognised franchise chain inter alia for quality improvement or branding purposes, without losing the visibility of their properties on the largest online booking platform in the country the Commission has no doubt in holding that the impugned arrangement between OYO and MMT-Go led to foreclosing the market in the form of denial of market access, under Section 19(b) and (c) of the Act, for FabHotels and Treebo as also for the independent budget hotels which were availing some logistic support from these players.
8. The Commission is thus, convinced that the conduct of MMT-Go in delisting FabHotels and Treebo, as well as the budget hotels which were availing some logistic support from them, in 2018 had adversely affected competition in the market by denying access to an important channel of distribution through foreclosure. Thus, the Commission feels no hesitation in concluding that the delisting occasioned to FabHotels and Treebo, as well as the budget hotels which were availing some logistic support from them, in 2018 was anti-competitive within the meaning of Section 3(4)(d) read with Section 3(1) of the Act.
According to the report the commission proved the existence of these agreements on records between MMT-GO &OYO which was in nature of vertical arrangement. The commission found that the MMT-Go & OYO were in violation of sec-4(1) which states about abuse of dominant position in the market. And found in contravention of sec-3(1) prohibition of agreements where two enterprises enter into an agreement which might cause adverse effect of competition in the market. Such agreements in such contravention shall be void.
The commission held that: MMT-GO has been directed to provide access to platforms on fair and transparent and non-discriminatory bases to the hotels. And beside a monetary penalty of 5% on the turnover of the companies MMT-GO &OYO amounting to 223.48 crores and 168.88 crores respectively.
In this current Digital world and all platforms required to be regulated for their improper practises the CCI has passed this order which is proven to be very effective and at the right juncture. The sections charged are Sec-4(2)(a)(i) and sec 4(2)(c) read with sec4(1) and also in contravention to sec-3(4)(d) read with sec 3(1) of the acts. These sections are offence regards to abuse of dominant position which directly or indirectly imposes unfair practise along with condition in purchase or sale of goods/services, Practices resulting in denial of market access and important concept called “Resale Price Maintenance” which includes any agreement to sell goods on condition that price charged on resale by purchaser shall be stipulated by the seller. For ensuring a fair market and to an environment which supports fair competition the commission has issued this order and such hefty amount of penalty on both the MMT-GO & OYO. Further direction on providing access to its platform on fair and transparent basis to hotels and chain of hotels.