Regulation of Narrow Price Parity Agreements in Multi-Sided Markets

Abstract

The article discusses the regulatory regime of digital multi-sided markets. It analyzes narrow price parity clauses designed to prevent a showrooming by depriving the supplier of the right to offer lower rates on its own website than on the platform. In recent years, some EC countries have banned such agreements. It was justified by the perceived benefits of increased vertical competition between suppliers and platforms acting as their distributors. The paper considers the interaction between the supplier and a platform like Booking.com, in the presence of narrow price parity clauses and without them. It is shown that the bans of such agreements may have long-run consequences radically different from the original intentions of the regulator. The reason for this is the reaction of the platform suppressing vertical competition by intensifying competition between the former and the newly attracted suppliers (apartment owners). The resulting uberization of the industry complicates the traditional suppliers (hotels) reproduction processes and negatively affects the welfare of consumers. The inefficiency of the existing regulatory regime of digital multi-sided markets leading to concentration of revenues in the hands of transaction platforms suggest that there is an urgent need to form national platforms, whose function should be to support domestic suppliers, create industry infrastructure, etc…