Competition watchdog slapped Rs 392 cr fine on MakeMyTrip-Goibibo & OYO, ordering them to stop uncompetitive practices. Consumers to gain from move in terms of better booking experience.
he Competition Commission of India’s (CCI’s) Wednesday order imposing a monetary penalty on MakeMyTrip, Goibibo, and OYO might only be a rap on the knuckles for the companies, but it also stands to make booking a hotel a better and cheaper experience for travellers.
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The Federation of Hotel & Restaurant Associations of India (FHRAI) and Casa2 Stays Pvt. Ltd. had in 2019 filed a case against the merged entity MakeMyTrip-Goibibo (MMT-Go) and Oravel Stays Private Limited (OYO) alleging abuse of dominance and agreements that harmed competition. On the basis of the allegations, the CCI asked its director general (DG) to investigate the matter. On Wednesday, the competition watchdog delivered its ruling based on the DG’s findings.
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Overall, the DG found that MMT-Go was indeed the dominant player in the market for online intermediation services for booking of hotels in India and that it was using this dominant position to force hotels to give it preferential terms. Further, the DG found that a confidential deal between MMT-Go and OYO had meant that other competitors were driven out of the market, leaving consumers with less choice.
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The CCI’s order fined MMT-Go and OYO 5 per cent of their annual turnovers, amounting to Rs 223.48 crore and Rs 168.88 crore, respectively. With domestic tourism growing strongly and set to grow even more in the next few months, such a low fine is likely to serve only as a rap on the knuckles.
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The non-monetary aspects of the order, however, stand to improve consumers’ booking experiences as it would not only give them access to more hotels, but also at lower prices.
Artificial barriers to entry
The main allegation against MMT-Go was that it had imposed conditions in its agreements with hotel partners wherein the hotels were not allowed to sell rooms on any other Online Travel Aggregator (OTA) or on their own websites at a price lower than what they were being offered at on MakeMyTrip. However, MMT-Go could “in its own discretion” fluctuate the prices of the hotel rooms on its platform.
“Further, the hotel partners are mandated to observe room parity whereby they cannot refuse to provide rooms on MMT-Go platform at any given point of time if the rooms are being provided on any other OTA,” the order added. Such impositions, it added, were not only creating artificial barriers to entry in the market but were also driving existing competitors out.
“Competition between OTAs will reduce commission rate for hotels,” the order said. “Further, the DG observed that on one hand, MMT-Go demands price parity, on the other hand, they themselves sell rooms at lower prices and gain loyalty of hotel’s original customers. In the long run, such conduct may lead to erosion of client base of hotels. Rate parity was also found to be having the impact of restricting choices available to customers.”
In relation to this, the DG submitted that, following the merger of MakeMyTrip and Goibibo in early 2017 and the subsequent dominance of the merged entity, no new player has entered the market.
“Further, imposition of rate parity and deep discounting practices of MMT-Go were observed to be affecting global players like Expedia and Booking.com, as was evident from their declining market shares,” the order added. “Additionally, such practices were not found to be leading to any improvements in production or distribution of goods or provision of services… Considering the above, the DG found the rate parity and room parity clause to be in contravention of Section 4(2)(a)(i) read with Section 4(1) of the Act.”
Section 4 of the Competition Act, 2002, deals with the abuse of dominance by companies.
Notably, the CCI has directed MMT-Go to suitably modify its agreements with hotels to remove the various limitations it had introduced, which means that consumers will now be able to find cheaper rooms by the same hotels if they looked on other platforms.
MMT-Go & OYO agreement anti-competitive
It was also alleged that MMT-Go and OYO had entered into a confidential agreement that had resulted in OYO’s competitors being removed from the MMT-Go platform. While the details of the agreement were redacted from the CCI’s order, the order did make clear that “neither MMT-Go nor OYO refused the existence of the commercial arrangement before the DG”.
The DG found that, following the deal, OYO’s competitors–FabHotels and Treebo–were delisted from MMT-Go’s platform. The delisting deprived the competitors of a large enough platform where consumers could view their services, and so they could no longer compete with OYO. The DG, thus, noted that both FabHotels and Treebo were driven out of the budget category hotels franchise business due to their delisting from the MMT-Go platform.
“Thus, the commercial arrangement/agreement between MMT-Go and OYO restricted the access to the MMT-Go portals, thereby preventing OYO’s competitors FabHotels and Treebo from being able to effectively compete with OYO,” the CCI order said. “Therefore, the said agreement resulted in a foreclosure of competition by hindering entry into the market.”
The CCI also observed that this agreement between OYO and MMT-Go directly impacts consumers as well because it reduces their choice of inventory to only what OYO can offer. If such an agreement had not taken place, the order said, then FabHotels and Treebo would have been able to list their properties on MMT-Go and provide consumers a wider choice
“Further, MMT-Go’s engagement with other players in the market would improve their ability to compete with OYO on a level playing field and the competition amongst these players in the market to gain more attention from consumers would have also resulted in improved service quality and better pricing,” the order said.
In other words, the deal between MMT-Go and OYO not only meant consumers had less choice of rooms, but they could have also got them for cheaper.
The CCI directed MMT-Go to provide access to its platform “on a fair, transparent and nondiscriminatory basis” by framing its listing terms and conditions in an objective manner, which means that MMT-Go will have to treat OYO’s competitors such as FabHotels and Treebo more equitably.
This, too, stands to benefit consumers as they will likely now have a greater choice of hotels and rooms.
Misrepresentation on the platform
Yet another allegation against MMT-Go was that the platform was showing certain hotels and properties as being ‘sold out’ whereas these properties might have only been delisted from MMT and might have had rooms available on other platforms.
“The Commission observed that MMT-Go is a dominant player in the relevant market and consumers heavily rely on results being shown on MMT-Go’s website,” the order said. “Any such misrepresentation of information on MMT-Go’s platform could affect the perspective of the consumer and may dissuade the consumer from searching on alternative channels for the same hotel, under the assumption that the hotel is sold out.”
This, CCI said, could result in the hotels seeing fewer room bookings and also the weakening of the competitiveness of the budget hotels registered on different OTAs, quite apart from the fact that such an act of misrepresentation is exploitative of such hotels.
In order to address this behaviour, the CCI ordered that MMT-Go provide transparent disclosures on its platform regarding the properties not available on its platform, either due to the termination of the contractual arrangement with any hotel or chain hotel or due to the exhaustion of the quota allocated to MMT-Go by such hotels.
What this means is that MMT-Go will have to now be upfront about rooms not available on its platform, which should encourage users to search for those same rooms on other platforms.
MMT-Go and OYO have to deposit their respective penalty amounts within 60 days of receipt of the order, and MMT-Go has to also provide a compliance report to the CCI within that time.
Source: The Print
