Online marketplaces provide sellers with access to not only prospective clients, but also to payment gateway and product listing systems. These advantages often allow smaller sellers and businesses an opportunity to compete with obtaining the same customers. In highly competitive industries such as travel, a typical marketing tactic is to offer customers the lowest prices, which result in marketplace operators including anti-competitive terms in contracts with suppliers.
Responding to these tactics, the Australian Competition and Consumer Commission (ACCC) has required some online marketplaces to change their contracts with hotels. In November 2016, the ACCC also released a guide for share economy platform operators, buyers and sellers. This article discusses what the ACCC has found anti-competitive, and provides guidance for how operators of online marketplaces can compete without running afoul of the law.
Claims to Lower Prices Must be Supported
Advertising the lowest prices can be crucial for an online marketplace to distinguish itself from its competitors. However, if a marketplace promises the lowest prices, it must be able to justify this promise. Otherwise, the advertising may be misleading – an offence under the Australian Consumer Law.
Even where there is no advertising involved, if a hotel marketplace (such as Expedia.com or Booking.com) relies on its reputation as having the lowest prices – or wants to rank highly for low prices on aggregator sites (such as Hotelscombined.com or Tripadvisor.com), the marketplace must ensure that their prices are among the lowest available.
Parity Clauses Enforce Lower Prices
In the offline world, shops often promise that if the customer can find a lower price elsewhere, the shop will match it. Online marketplaces, however, seem reluctant to offer this traditional price-matching. As an alternative, hotel marketplaces have used 'parity clauses' in their contracts with accommodation providers. Parity clauses require that hotels offer their best or lowest price and availability to online marketplaces. This prevents hotels from offering their rooms through other channels at a lower rate than that offered through the marketplace.
The contracts often also require the hotel to make all its rooms available through the one marketplace. This reduces competition among distributors, online marketplaces, other online and offline channels and the hotel themselves. This restriction removes the ability of the hotel to offer services at lower prices elsewhere, limiting consumers' choices and the ability to negotiate a better deal for themselves.
Are Parity Clauses Anti-Competitive?
After an investigation, the ACCC concluded that much of many parity clauses were anti-competitive. It agreed with some marketplaces, including Expedia and Booking.com, that they should no longer include parity clauses in their contracts to restrict hotels from offering better prices and availability.
Therefore, contracts can no longer restrict hotels to offering their services through a single marketplace. Instead, hotels can make different rooms available at varied prices and offer deals through different marketplaces. They can also negotiate with customers through offline channels, such as telephone bookings and walk-ins.
However, the ACCC allowed the restriction that prevents hotels from making rooms available at lower prices on their websites. This restriction stops hotels from listing rooms on marketplaces to attract customers initially but then offering those rooms at lower prices to invite the customer to book with them directly. This particular restriction was not deemed to be anti-competitive, but rather crucial for marketplaces to function.
The agreement between the ACCC and the hotel marketplaces didn't create a legal precedent since it was not decided by a court, made public nor did it involve binding obligations. However, it shows what the ACCC thinks about the use of such contractual restrictions. Marketplace operators should be aware of the implications. Any attempt by a marketplace to restrict a supplier’s ability to offer its services through other competing channels (for example, at a lower price or with different features or availability) may be considered to be potentially anti-competitive and open to challenge.
Implications for Online Marketplaces
If you operate an online marketplace and your contracts contain restrictive rules on suppliers listing on your marketplace, you should consider carefully whether any of those rules may be anti-competitive. In particular, any rules that might restrict a supplier from offering a better or different price, product or service elsewhere could be at risk of being anti-competitive.
If a particular term was considered anti-competitive, your marketplace could become the subject of an investigation or a penalty by the ACCC, particularly if you attempted to rely on any such term in a dispute.
An online marketplace requires contractual rules to govern the behaviour of its suppliers. However, contracts that are too restrictive are in danger of being found anti-competitive by the ACCC. At the other extreme, contracts that are too relaxed allow both suppliers and competitors to take advantage.
Drafting rules that allow you to stand out among the competition while not falling afoul of anti-competitive laws requires specialist legal advice. LegalVision’s online lawyers can assist you with this if you own or are starting up an online marketplace. Get in touch on 1300 544 755.