Working paper

Price Parity Clauses for Hotel Room Booking: Empirical Evidence from Regulatory Change

Sean Ennis, Marc Ivaldi, and Vicente Lagos

Abstract

This paper examines the impact of most favored nation (MFN) clauses on retail prices, taking advantage of two natural experiments that changed vertical contracting between hotels and major digital platforms. The broad E.U. intervention narrowed the breadth of “price parity” obligations between hotels and major Online Travel Agencies (OTAs). Direct sales by hotels to customers subsequently became relatively cheaper. Comparisons with hotel pricing outside the E.U. confirm the reduction in prices for mid-level and luxury hotels. France and Germany went further and eliminated all price-parity agreements. This stronger intervention was associated solely with a significant additional price-reducing effect for mid-level hotels in Germany. Overall, wide MFNs are associated with higher retail prices. Regulating MFNs reduced prices with primary effects coming either from the narrow price-parity intervention or, perhaps, from direct sales becoming cheaper than OTAs in both E.U. and non-E.U. countries, and, interestingly, not from complete elimination of MFNs.

Keywords

Price Parity Clause (PPC); Most favored nation (MFN); Most favored customer (MFC); Hotel Industry; Impact Evaluation; Online Travel Agency (OTA); digital platforms;

JEL codes

  • K21: Antitrust Law
  • L14: Transactional Relationships • Contracts and Reputation • Networks
  • L42: Vertical Restraints • Resale Price Maintenance • Quantity Discounts
  • L81: Retail and Wholesale Trade • e-Commerce

Reference

Sean Ennis, Marc Ivaldi, and Vicente Lagos, Price Parity Clauses for Hotel Room Booking: Empirical Evidence from Regulatory Change, TSE Working Paper, n. 20-1106, May 2020.

See also

Published in

TSE Working Paper, n. 20-1106, May 2020