Why CCI’s Decision Against Makemytrip-GoIbibo-Oyo Redefines Platform Markets


The Competition Commission of India’s recent penalising MakeMyTrip, GoIbibo and Oravel Stays India Pvt. (Oyo) has given a new lease of life to the age-old adage—‘Bad facts make bad law’

Competition is all about rivalry. Markets sans entry barriers foster rivalry. Greater the rivalry amongst competitors, higher the benefit to consumers. 

At first glance, it appears that MakeMyTrip-GoIbibo’s insistence on price and room parity conditions reduces price rivalry amongst competing online travel agencies and cuts off access to room inventory.

Price or non-price parity conditions mimic “most favoured nations” mechanisms used by sovereign trading partners while negotiating trade agreements. 

MFN clauses ensure that countries offer each other as favourable trading terms as are offered to other trading partners.

In international trade, MFN clauses are an efficient tool to reduce tariff and non-tariff barriers between countries, because they automatically adjust if other trading partners are offered better tariff/non-tariff concessions. In the long term, they help reduce discrimination between trading nations.

When adopted by private corporations, this reduction in discrimination on price/non-price terms through parity conditions, reduces competitive rivalry in the market. 

MakeMyTrip-GoIbibo’s agreement with Oyo was conditioned on delisting Oyo’s competitors—FabHotels and Treebo. It denied the two access to an important channel to reach customers. 

Intuitively, MakeMyTrip-GoIbibo’s price and room parity conditions and agreeing to delist FabHotels and Treebo, appears to reduce competitive rivalry.

Price parity conditions reduce hotel partners’ incentives to offer better prices to competing online travel agencies—it also limits their ability to price more competitively on their own websites.

Delisting FabHotels and Treebo denied them access to MakeMyTrip-GoIbibo’s popular platform, while also reducing competitive intensity on the platform. 

As a specialist regulator, the CCI cannot simply rely on intuition. It must gather and examine facts dispassionately, and reach a finding based on a weighing of likely harms against potential benefits. 

Under the [Indian] Competition Act, 2002, restraints imposed by a corporation on its trading partners (vertical restraints)—in this case, by MakeMyTrip-GoIbibo on hotel partners—must be shown to cause an appreciable adverse effect on competition.

To do so, the CCI must first define the relevant market, within which it analyses whether the restraints cause competitive harm.

Years of competition law enforcement across the globe indicate that if the entity imposing restraints holds market power, its conduct is more likely to cause appreciable adverse effect on competition. Naturally, the narrower a market is defined, greater market power the enterprise appears to hold. 

In this case, the CCI’s market definition holds the key to its entire analysis and its eventual finding of infringement against MakeMyTrip-GoIbibo and Oyo.

To translate its intuition into an infringement decision, the CCI seems to have made all efforts to define the relevant market as narrowly as possible. In doing so, it mischaracterises the nature of MakeMyTrip-GoIbibo’s services, ignores economic concepts, and facts specific to the Indian market.

MakeMyTrip-GoIbibo operates as a platform that connects two sets of market participants—vendors, such as hotel owners, travel service providers (airlines, buses, taxis) and travelers—who are the end consumers of travel and tourism-related services.

MakeMyTrip-GoIbibo provides separate but interrelated services to both vendors and end consumers.

For vendors, MakeMyTrip-GoIbibo allows for discovery and distribution of hotel inventory. For end consumers, MakeMyTrip-GoIbibo’s platform allows for search, comparison and booking of hotels listed on the platform.

These two separate sets of services offered by MakeMyTrip-GoIbibo to two separate sets of stakeholders translate into a transaction between the vendors and the end customers, once a booking is complete on the MakeMyTrip-GoIbibo portal. These transactions form the core of MakeMyTrip-GoIbibo’s business model. 


Source link

What is your reaction?

In Love
Not Sure

You may also like

Comments are closed.

More in:Business