Platform Monopolization by Narrow-PPC-BPG Combination: Booking et al.
16 Pages Posted: 13 Jun 2017 Last revised: 12 Aug 2017
Date Written: June 13, 2017
The price parity clauses (PPCs) that online booking platforms impose have come under antitrust scrutiny. Wang and Wright (2017) argue that by preventing showrooming, a narrow PPC can reduce search costs and benefit consumers under between-platform competition. In response to having to give up its wide PPC to hotels, Booking.com emphasized its best price guarantee (BPG) to customers. We observe that a narrow PPC combined with a BPG leaves only Wang and Wright's Price Parity and Monopoly Equilibrium (PPME), in which consumers are worse off than with no platform operating at all. A more efficient (incumbent) platform can deter entry with the BPG, whereas upon entry of an equally efficient platform, the BPG allows the platforms to price coordinate. The narrow PPC eliminates competition from direct sales channels. The detrimental narrow-PPC-BPG contract combination that we point out calls for different platform competition policy.
Keywords: booking platform, price parity clause, best price guarantee, entry deterrence, collusion
JEL Classification: D21, K21, L41
Suggested Citation: Suggested Citation