The Competition Commission of India on October 28, 2019 issued directions under Section 26(1) of the Competition Act, 2002 to the Director General to carry out detailed investigation against MakeMyTrip India Pvt. Ltd. , Ibibo Group Private Limited and Oravel Stays Private Limited for alleged contravention of Section 3 and Section 4 of the Competition Act, 2002.

Brief Facts

Federation of Hotel & Restaurant Associations of India (hereinafter referred as ‘Informant’) filed an Information before the Competition Commission of India (hereinafter referred as ‘CCI’) under Section 19(1)(a) of the Competition Act, 2002 (hereinafter referred as ‘Act’) against MakeMyTrip India Pvt. Ltd. (hereinafter referred as ‘MMT’), Ibibo Group Private Limited (hereinafter  referred as ‘GoIbibo’), collectively referred to as ‘MMT-Go’ and Oravel Stays Private Limited (hereinafter referred as, ‘OYO’) alleging contravention of the provisions of Sections 3 and 4 of the Act. 

The Informant alleged that the Opposite Parties have abused their respective dominant positions, they have cartelized and further, they have entered into anti-competitive arrangements/agreements. The Informant alleged that MMT-Go, OYO, booking.com, yatra.com, cleartrip.com, expedia.com etc. are operating as Online Travel Agency (‘OTA’) in India, alternatively known as the domestic OTAs. While referring to the order dated 18.01.2017 of the Commission with respect to approval of merger/combination of MMT and GoIbibo, the Informant submitted that the said merger has led to their dominance in the relevant market of OTAs, which has empowered MMT-Go to operate independently of the competitive forces prevailing in the relevant market. Further, it was informed that OYO facilitates and markets budget accommodation on its platform. It has approximately 18,752 hotels registered on its platform across all major cities in India and its market share for supply of rooms priced below Rs. 2000 is 28% and for rooms priced below Rs.1000 is 67% which clearly shows that it has gained a competitive advantage and has secured a position of dominance in the relevant market.

In a nutshell, the Informant made allegations under following heads-

Room and Price Parity Impositions;

Denial of Market Access;

Predatory Pricing;

Exorbitant/ unfair commissions;

Misrepresentation of Information;

Hotel Service Fee

Issues

The Informant alleged abuse of dominant position by the Opposite Parties collectively as well as individually. The CCI, after considering the decision in M/s Fast Track Call Cabs and Another v. ANI Technologies Pvt. Ltd, Case No. 6 and 74 of 2015, held that the Act does not provide for the concept of collective dominance and rejected the contention of the Informant regarding abuse of dominant position by the Opposite Parties collectively as being beyond the legal framework of Section 4 of the Act.

The CCI delineated two different markets  for competition analysis-

The relevant market with regard to OYO- ‘market for franchising services for budget hotels in India’.

Relevant market for MMT-Go-‘market for online intermediation services for booking of hotels in India’.

Analysis of the CCI

Room and Price Parity Impositions

The Informant alleged that MMT-Go has imposed a term in the contract with hotels whereby the latter is not allowed to sell its room at any other platform or on its own online portal at a price below which it is being offered on MMT-Go’s platforms. Further, there is a room parity arrangement also which allegedly restricts the inventory made available to other OTAs vis-à-vis MMT-Go. Across Platform Parity Agreements (APPAs), popularly referred to as ‘retail Most Favoured Nation (MFN) clauses’, are stipulations where the sellers guarantee an online selling platform terms, price and/or non-price, that are at least as favourable as those granted to any other platform thus ensuring the former a competitive advantage over its competitors. 

The CCI analysed the price or non-price restrictions to see whether such restrictions lead to more concentration  or enhanced entry barriers to the detriment of consumers. The CCI observed that such restrictions have been categorised by various competition authorities as ‘narrow’ restrictions and ‘wide’ restrictions. Under narrow restrictions, suppliers agree not to set lower prices or offer better terms through their own websites compared to prices/terms offered on the platform imposing the restriction. Wide restrictions, on the other hand, restrict a supplier from charging lower prices or providing better terms on their website, as well as through any other sales channel, including other OTAs. Further, such clauses are generally imposed as a vertical restraint by a platform on the sellers/service-providers selling through the platform. Further, if the platform is dominant, it may also amount to imposition of an unfair pricing condition. 

The CCI held that APPAs may result in removal of the incentive for platforms to compete on the commission they charge to hoteliers, may inflate the commissions and the final prices paid by consumers and may also prevent entry from new low cost platforms. Though the magnitude of the anticompetitive effects of these agreements inter alia will depend on the market power of the platform, given the prima facie dominance of MMT-Go, such parity restriction needs to be investigated to gauge its impact under Section 3(4) as well as Section 4 of the Act.

Denial of Market Access

Informant alleged that Treebo and Fab Hotel have been removed from the platform of MMT-Go as they both did not agree to pay the exorbitant commission brokerage charged by them. This, according to the Informant, is a denial of market access. Further, the Informant argued that pursuant to the commercial agreement between OYO and MMT, MMT gives preferential treatment to OYO on its portal, whereby the hotels of OYO are given preference, which leads to further denial of market access.        

The CCI observed that OYO as a budget hotel chain is in a vertical relationship with MMT, which is essentially a distribution platform for hotels. Both have considerable presence in their respective market segments and any restrictive agreement which may lead to refusal to deal with some players or exclusive arrangement with some players, may potentially have adverse effect on competition. While MMT has been prima facie held to be dominant in the ‘market for intermediation services for booking of hotels in India’, OYO has been prima facie found to be a significant player in the ‘market for franchising services for budget hotels in India’. Thus, whether the commercial agreement between OYO and MMT entails preferential treatment to OYO and consequent exclusion of Treebo, Fab hotel and any other hotel chain and if so, the effect of the same on competition merits investigation.

Predatory Pricing

It was alleged that the Opposite Parties are indulging in deep discounting and predatory practices by charging below the average room rate. Deep discounts are often offered in platform markets to establish network effects. 

The CCI observed that MMT-Go has been prima facie found to be in a dominant position in the relevant market and they have been in business since the year 2000, such practice by them does not appear to be introductory or aimed at building the network. Though at this stage information on the cost structure of MMT-Go, hotels and the prices charged by hotels and discounts offered by MMT-Go is not available with the Commission, this issue may need to be investigated along with other issues.

Exorbitant / unfair Commissions

The Informant raised issues like charging of excessive commission by the Opposite Parties from the hotels. The Commission observed that the term ‘excessive’ is ambiguous to the extent that there are no clear standards to determine what price is excessive or fair. As regards the present case, the Informant has alleged that the Opposite Parties charged excessive commission as compared to its competitors. A competitor’s price may, however, not be a correct benchmark for ascertaining the price charged by a player. Even otherwise, at this stage the Commission does not find it appropriate to return a finding on this issue especially when the market structure, entry conditions, cost structure of platforms etc. remain to be investigated.

Misrepresentation of Information

The Commission observed that showing non-availability of rooms on the portal, instead of delisting them, even when the hotels have specifically requested for severing of ties with MMT-Go raises concerns. By showing such misleading information and creating information asymmetry in the market, the conduct of MMT-Go has the potential to deny market access to the concerned hotels. As normally understood, a consumer who once sees that a particular hotel is sold out, will not try to contact the hotel directly or try to book it from another portal. This means that such hotel would lose their prospective customers due to this restrictive conduct of MMT-Go that causes prejudice to the hotel owners who list their properties and denies them a fair access of the market leading to loss of business substantially. This also has an adverse impact on consumer welfare as the prospective consumers who may be interested in booking a hotel rooms will be given misrepresented information in order to manipulate their choices in favour of hotels who are available at the MMT- Go’s platform.

Hotel Service Fee

It was alleged that MMT charges a service fee from the consumer at the time of booking the rooms in the name of the hotels, which is pocketed by MMT. Further, the charging of service fee by MMT is alleged to be discriminatory as such fee is levied on certain hotels and allegedly not levied on high-end of chain hotels. 

The CCI observed that since MMT is prima facie found to be dominant, this conduct of MMT merits investigation.

Decision

The Commission was of the view that there exists a prima facie case for investigation against MMT-Go and Oyo for alleged violation of the provisions of Section 3(4) of the Act. Further. A prima facie case for investigation under Section 4 of the Act is made out against MMT-Go. Therefore the DG is directed to carry out a detailed investigation into the matter, in terms of Section 26(1) of the Act.

This update has been contributed by Prerana Amitabh (Managing Associate).