Why CCI's Decision Against Makemytrip-GoIbibo-Oyo Redefines Platform Markets
The Competition Commission of India’s recent penalising MakeMyTrip, GoIbibo and Oravel Stays India Pvt. (Oyo) has given a new lease of life to the age-old adage—‘Bad facts make bad law’.
Competition is all about rivalry. Markets sans entry barriers foster rivalry. Greater the rivalry amongst competitors, higher the benefit to consumers.
At first glance, it appears that MakeMyTrip-GoIbibo's insistence on price and room parity conditions reduces price rivalry amongst competing online travel agencies and cuts off access to room inventory.
Price or non-price parity conditions mimic "most favoured nations" mechanisms used by sovereign trading partners while negotiating trade agreements.
MFN clauses ensure that countries offer each other as favourable trading terms as are offered to other trading partners.
In international trade, MFN clauses are an efficient tool to reduce tariff and non-tariff barriers between countries, because they automatically adjust if other trading partners are offered better tariff/non-tariff concessions. In the long term, they help reduce discrimination between trading nations.
When adopted by private corporations, this reduction in discrimination on price/non-price terms through parity conditions, reduces competitive rivalry in the market.
MakeMyTrip-GoIbibo’s agreement with Oyo was conditioned on delisting Oyo’s competitors—FabHotels and Treebo. It denied the two access to an important channel to reach customers.
Intuitively, MakeMyTrip-GoIbibo’s price and room parity conditions and agreeing to delist FabHotels and Treebo, appears to reduce competitive rivalry.
Price parity conditions reduce hotel partners’ incentives to offer better prices to competing online travel agencies—it also limits their ability to price more competitively on their own websites.
Delisting FabHotels and Treebo denied them access to MakeMyTrip-GoIbibo’s popular platform, while also reducing competitive intensity on the platform.
As a specialist regulator, the CCI cannot simply rely on intuition. It must gather and examine facts dispassionately, and reach a finding based on a weighing of likely harms against potential benefits.
Under the [Indian] Competition Act, 2002, restraints imposed by a corporation on its trading partners (vertical restraints)—in this case, by MakeMyTrip-GoIbibo on hotel partners—must be shown to cause an appreciable adverse effect on competition.
To do so, the CCI must first define the relevant market, within which it analyses whether the restraints cause competitive harm.
Years of competition law enforcement across the globe indicate that if the entity imposing restraints holds market power, its conduct is more likely to cause appreciable adverse effect on competition. Naturally, the narrower a market is defined, greater market power the enterprise appears to hold.
In this case, the CCI’s market definition holds the key to its entire analysis and its eventual finding of infringement against MakeMyTrip-GoIbibo and Oyo.
To translate its intuition into an infringement decision, the CCI seems to have made all efforts to define the relevant market as narrowly as possible. In doing so, it mischaracterises the nature of MakeMyTrip-GoIbibo’s services, ignores economic concepts, and facts specific to the Indian market.
MakeMyTrip-GoIbibo operates as a platform that connects two sets of market participants—vendors, such as hotel owners, travel service providers (airlines, buses, taxis) and travelers—who are the end consumers of travel and tourism-related services.
MakeMyTrip-GoIbibo provides separate but interrelated services to both vendors and end consumers.
For vendors, MakeMyTrip-GoIbibo allows for discovery and distribution of hotel inventory. For end consumers, MakeMyTrip-GoIbibo’s platform allows for search, comparison and booking of hotels listed on the platform.
These two separate sets of services offered by MakeMyTrip-GoIbibo to two separate sets of stakeholders translate into a transaction between the vendors and the end customers, once a booking is complete on the MakeMyTrip-GoIbibo portal. These transactions form the core of MakeMyTrip-GoIbibo’s business model.
While defining the relevant market, the CCI recognises that: “MMT-Go offers intermediation service that enables users to search hotels, make a comparison between hotels in terms of price and other relevant factors and book a hotel on the same platform. As a corollary, it enables hotels to list their inventory, get visibility to potential customers and sell inventory on the same platform.”
Intermediation between vendors and end customers occurs when the booking (by consumers) and sale (by vendors) is consummated.
In other words, intermediation occurs when the purchase and sale transaction goes through.
Absent such intermediation, online travel agencies would fail to attract both vendors and end customers. Their business model would fall apart. Therefore, online travel agencies must work to wean customers away from other forms of booking hotels.
Equally, they must convince hotel owners to dedicate their inventory for sale through their platforms, invariably at the cost of sale through other channels.
If the CCI were to recognize that intermediation forms the core of MMT-Go’s offering, then it would have had to recognize that MMT-Go competes with different channels-direct booking through hotel websites, bookings through traditional travel agents, walk-ins, and phone booking- to attract end customers and in-turn attract hotel owners to list their inventory.
But doing so would have led to the conclusion that offline and online channels for booking hotels compete- a conclusion the CCI had already expressed in its decision approving MMT’s acquisition of Go-Ibibo in 2017. Such a conclusion would not support a finding of market power or dominance of MMT-Go, and in turn a finding of infringement.
As a workaround, the CCI opts to relegate “intermediation” to a side story. Instead, it considers the hotel owners’ perspective and states that hotels list on online travel agencies primarily for “visibility and other attractive features incentivizing potential travelers to use the OTA for bookings”. Then, the CCI considers that consumers use online travel agencies primarily for their “search, compare and booking” services.
Steering the focus away from “intermediation”, the CCI proceeds to examine the features of online and offline modes of booking hotels. No surprises—it concludes that each of these channels have different attributes and therefore, aren’t substitutable.
Product characteristics do help determine whether two or more products are substitutable. But reliance on characteristics alone can lead to incorrect conclusions.
The ultimate test for whether two or more products, notwithstanding their specific and distinguishable features, is whether consumers treat the two as interchangeable, if the prices of one of these products were to suddenly increase by a small but material degree. The CCI does not conduct this analysis.
Instead, it disregards evidence of end consumers using various modes of booking hotels and hotel owners distributing their room inventory across different channels. The CCI then asserts that different modes of hotel booking, and distribution is ‘complementary’ and not ‘substitutable’.
Interestingly, the CCI also dispenses with the economic test for ‘complementarity’. Two or more products are considered complements when an increase in demand for one results in an increase in demand for the other. Cars and tyres, for example.
In sum, the CCI’s decision to split up MakeMyTrip-GoIbibo’s services into two separate categories and not recognise intermediation as the core of MakeMyTrip-GoIbibo’s business forms the foundation for its infringement finding.
It relies heavily on differences in product characteristics to support its finding of lack of substitution and dismisses evidence on use of different modes/channels for booking hotels.
The CCI’s decision penalising MakeMyTrip-GoIbibo and Oyo holds important lessons for platform operators. Platform operators must toil to win business away from offline or traditional channels. But they can no longer consider them as part of the same market.
Rahul Rai is a partner at Axiom5 Law Chambers and Shruti Aji Murali is a counsel at Axiom5 Law Chambers.
The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.