Platform Price Parity Clauses and Segmentation
UB Economics Working Papers E19/387
40 Pages Posted: 14 Feb 2019
Date Written: January 21, 2019
We investigate how the adoption of price parity clauses (PPCs) by established platforms affects the listing decisions of suppliers. PPCs have been widely adopted by online travel agencies (OTAs) to force client hotels not to charge lower prices in alternative sales channels. We find that OTAs adopt PPCs when they are perceived as highly substitutable, and in order to prevent showrooming. PPCs allow OTAs to charge hotels higher commission fees. However, hotels can respond by delisting themselves from some OTAs. Hence, our analysis reveals that the removal of PPCs enables more hotels to resort to OTAs. This is beneficial for consumers, as prices decrease in absence of PPCs.
Keywords: Price parity clauses, Online travel agencies, Segmentation, Vertical relations
JEL Classification: D40, L42, L81
Suggested Citation: Suggested Citation