Platform Monopolization by Narrow-PPC-BPG Combination: Booking et al.

20 Pages Posted: 13 Jun 2017 Last revised: 28 Mar 2018

Francisca Wals

University of Amsterdam - Faculty of Economics and Business (FEB)

Maarten Pieter Schinkel

University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

Date Written: June 13, 2017

Abstract

The price parity clauses (PPCs) that online booking platforms impose have come under antitrust scrutiny. Wang and Wright (2017) show how 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 (low hassle costs) 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, while the narrow PPC eliminates competition from direct sales channels. An equally efficient platform could enter and compete consumer prices down because of the existence of hassle costs, yet this equilibrium is fragile to network effects. If sellers have incentives not to price differentiate between platform(s) and their direct sales channel, a narrow PPC alone suffices to sustain the PPME in both cases. The detrimental pricing contract combination that we point out calls for different platform competition policy.

Keywords: platform, price parity clause, best price guarantee, entry deterrence, collusion

JEL Classification: D21, K21, L41

Suggested Citation

Wals, Francisca and Schinkel, Maarten Pieter, Platform Monopolization by Narrow-PPC-BPG Combination: Booking et al. (June 13, 2017). International Journal of Industrial Organization, 2018 Forthcoming; Amsterdam Law School Research Paper No. 2017-32; Amsterdam Center for Law & Economics Working Paper No. 2017-01. Available at SSRN: https://ssrn.com/abstract=2985317 or http://dx.doi.org/10.2139/ssrn.2985317

Francisca Wals

University of Amsterdam - Faculty of Economics and Business (FEB) ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Maarten Pieter Schinkel (Contact Author)

University of Amsterdam - Amsterdam Center for Law & Economics (ACLE) ( email )

Roetersstraat 11
1018 WB Amsterdam
Netherlands
+31 20 525 7132 (Phone)
+31 20 525 5318 (Fax)

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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