«NarrowMFN» : basic idea

Transcription

1 III. Narrow MFN 1

2 III. Narrow MFN «NarrowMFN» : basic idea A good balance Solving anticompetitive effects While maintaining efficiency gains Two types of channels two types of MFN clauses : direct channel / OTAs OTA- MFN Supplier- MFN = «narrow MFN» Hotel OTA1 OTA2 Hotel OTA1 OTA2 Consumers Consumers - High anticompetitive effects - Low efficiency gains - Low anticompetitive effects - High efficiency gains 2

3 III. Narrow MFN Is narrow MFN equivalent to wide MFN in practice? (1/2) Comments of the hotelkeepers on the «supplier MFN» or «narrowmfn» : Narrow MFN will imply a de facto wide MFN, i.e. status quo maintained Why? Fear of cannibalisation of the hotels direct sales Hotel 100 Narrow MFN Booking 100 Wide MFN Shift of demand? Cannibalisation? Expedia 90 => If hotels are reluctant to decrease their prices on cheaper OTAs, lower incentive for OTAs to decrease their commissions, etc. => vicious circle 3

4 III. Narrow MFN Is a narrow MFN equivalent to a wide MFN in practice? (2/2) Economic model submitted by the hotelkeepers Studies mutual interest for hotels and OTA to lower their prices and commissions Results : very few matching points (lower hotel price / lower commission rate) Don t overlap for various characteristics (elasticity of demand, share of hotel s own channel) => as hotels are heterogenous, need for bilateral negotiations ; but large number of hotels (more than ) Main limits of the economic model of the hotelkeepers : Assumption that small OTAs maintain their MFNs Static model [The hotelkeepers also submitted a dynamic model, but assumption of no hotel s direct channel] Unrealistic levels of commissions Assumption that acquisition costs of customers on the hotel channel are nil No interbrand competition No offline channel in the model Ignores the possibilities for a hotel to set various prices for different dates in order to minimize the risk of cannibalisation 4

5 III. Narrow MFN Why should the commitments work? One of the key parameters = the share of the hotel s direct sales Other paramaters : elasticity of demand, initial commission rates of OTAs, market shares of various OTAs Initial narrow MFN Final narrow MFN Remaining channel bound by an MFN after commitments : Prices displayed on the website of the hotel to the public in general Hotels have an incentive to price differentiate accross OTAs Independent hotels ~ 7% of total bookings bound by MFN Hotel chains ~ 7 12 % of total bookings bound by MFN Marginal cost of acquisition of customers hotel s channel is not free for the hotel Bilateral negotiations with the whole chains = easy Withdrawal of the availability parity clause Impact on efficiency gains : possibility for increased free riding, but limited While high risk if there is a possibility to display lower prices on the public website of the hotel 5

6 III. Narrow MFN What do we observe in practice? 6

7 IV. Issue of smaller OTAs Is the safe harbour of 30% of the VBER relevant in the case of MFN practices? 7

8 IV. Issue of small OTAs Small OTAs may have market power A small OTA < 30% market share may impose an MFN Scope of the MFN > market share % of hotels listed on the OTA > market share Market power not necessarily reflected in market shares Ability to impose high commissions on hotels in presence of MFNs depends on willingness of hotels to be listed on the OTA Market power of an OTA : priviledged access to certain types of consumers high opportunity cost for hotels to lose bookings network effects and coordination problem : presence of competing hotels on the OTA and risk to lose demand to the benefit of competing hotels if delisting 8

9 IV. Issue of small OTAs Theory of harm Problem with «OTA MFN» maintained by small OTAs and not large OTAs : Low incentive for large OTAs to decrease their commissions Incentive for the small OTA to increase her commission : pass through low, because small market share Limit: reaction of the largest OTA to avoid getting the highest room prices Problem with MFN maintained by small OTAs on the offline channel of hotels (OTA MFN withdrawn): Cannibalisation problem higher : competing OTA where demand can shift is larger Incentive for the small OTA to increase her commission : pass through low, because small market share 9

10 Many thanks for your attention. 10

11 Results of UMIH GNC's model Zone 1 = price sensitivity of 8, Zone 2 = price sensitivity of 10 and Zone 3 = price sensitivity of 15 11

12 FCA's results for independent hotels Price sensitivity = 8 Price sensitivity = 10 Price sensitivity = 15 12

13 FCA's results for hotel chains Price sensitivity = 8 Price sensitivity = 10 Price sensitivity = 15 13