1. Price differentiation and price parity clauses
ACE annual conference
Madrid, November

2. Background
What may be the effects of restricted price parity clauses compared to a situation where there were no such clause?
The empirical analysis by Booking.com compares OOP rates of
hotels not participating in Booking.com’s “Preferred program” in France and all hotels in Germany (starting from Jan 2016)  absence of restricted price parity clause
to hotels still subjected to restricted price parity clauses in the ECN workgroup countries (BE, CH, CZ, DE, FR, UK, HU, IE, IT, NL, SE)
Booking.com’s “Preferred program”
awarded to high-performing properties (guest review score, higher than average conversion rate, low cancellation numbers, flawless payment record, offers a good amount of availability and a selection of popular rates to Booking.com)
hotels in the program benefit from extra features (appearance towards the top of search results, recommendation by Booking.com) in exchange for a higher commission rate
The exercise was complicated by the “Macron law”, which came into force on 06/08/2015

3. Discussion Measurement of price differentiation
The nature of Booking.com’s restricted price parity clauses
If hotels subjected to Booking.com’s restricted price parity clause are concerned with the cannibalization of their direct online sales, they may be unwilling to offer a lower price on an alternative OTA compared to the price offered on Booking.com
In contrast, Booking.com’s restricted price parity clause does not prevent hotels to offer a higher price on alternative platforms compared to the price offered on Booking.com
In France, after the Macron Law, only Booking.com continues to apply restricted price parity clauses
Unilateral OOP rates (prices on alternative OTAs lower than on Booking.com) may be more suitable to reflect the impact of Booking.com restricted price parity clause in France
Bilateral OOP rates (prices on alternative OTAs higher or lower than on Booking.com ) may be more suitable in countries where several OTAs implement restricted price parity clauses
Hotels may present either higher or lower prices on Booking.com than on other platforms…

4. Discussion Econometric specification
The econometric specification does not adequately take into account factors that may influence hotels’ decision to differentiate their prices on different OTAs
Country fixed effects are used, with dummies for capital
However, local market conditions may be relevant for hotels’ decision to differentiate prices across OTAs
This may be reflected in the weak R² (0.07 or less)
Observed vs fitted plot of one of the regressions

5. Discussion Econometric specification
The econometric specification may not adequately take into account factors that may influence hotels’ decision to differentiate their prices on different OTAs
The FCA therefore tested the robustness of the results in an attempt to take into account local market conditions through the use of fixed effects
City fixed effects instead of country fixed effects
City x month fixed effects to account for potential varying local conditions in time
Hotel fixed effects
On a more minor note, standard errors were also clustered at the hotel level
… but it is likely that errors are not i.i.d. across hotels
Average OOP rates vary across countries, suggesting that the extent to which hotels differentiate prices may be affected by common unobservables
The FCA decided to run the robustness checks using clustered standard error at the country level

6. Discussion Econometric specification
Results : OOP rates wrt all OTAs

7. Discussion Econometric specification
Results: OOP rates wrt the main 3 OTAs (Expedia, HRS and Booking)

8. Concluding remarks
Evidence on the impact restricted price parity clause is not compelling
When considering unilateral OOP rates, the absence of restricted price party clauses is uncorrelated to more price differentiation in some specifications
When it is correlated, the effect is not robust and very limited in scope
The estimations suggest that OOP rate could increase by less than 1 percentage point in absence of restricted price parity clause, all else being equal

9. Concluding remarks
More generally, difficult to tease out the effects of restricted price parity clauses on the prevalence of price differentiation
Further control variable may be needed (e.g., commission rates offered by OTAs to hotels)
Data only available for a relatively short period (seasonal effects)
Uncertainty wrt to the homogeneity of offers on different OTAs by hotels
Observed price differences may stem from hotel managers not simultaneously synchronizing prices offer on different OTAs
In France,
since hotels choose to participate in the “Preferred program”, there may be issues related to endogeneity
legal uncertainty on the enforceability of restricted price parity clauses after the Macron law for “Preferred” hotels
On a broader perspective, it may be more relevant to investigate the impact of such clauses on commission rates rather than price differentiation
What about efficiency gains ?

10. Thank you for your attention!