Tuesday, July 25, 2017
Francisca Wals, University of Amsterdam - Faculty of Economics and Business (FEB) and Maarten Pieter Schinkel, University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) have a paper on Platform Monopolization by Narrow-PPC-BPG Combination: Booking Et Al.
ABSTRACT: The price parity clauses (PPCs) that online booking platforms impose have come under antitrust scrutiny. Wang and Wright (2017) argue that by preventing showrooming, a narrow PPC can reduce search costs and benefit consumers under between-platform competition. In response to having to give up its wide PPC to hotels, Booking.com emphasized its best price guarantee (BPG) to customers. We observe that a narrow PPC combined with a BPG leaves only Wang and Wright's Price Parity and Monopoly Equilibrium (PPME), in which consumers are worse off than with no platform operating at all. A more efficient (incumbent) platform can deter entry with the BPG, whereas upon entry of an equally efficient platform, the BPG allows the platforms to price coordinate. The detrimental narrow-PPC-BPG contract combination that we point out calls for different platform competition policy.