The case against ‘Narrow’ price parity clauses

Authors: Price parity clauses have received significant amount of attention from both academics and antitrust agencies. The predominant view is that ‘narrow’ parity clauses are not as pernicious as ‘wide’ parity clauses and they are necessary to restrict free-riding; for instance, free-riding of hotels on Online Travel Agents’ (OTAs) efforts. This paper challenges this understanding. The paper builds upon a recent investigation report from the Bundeskartellamt in Booking.com case that empirically shows the insignificance of free-riding in the market for online hotel intermediation. With explicit reference to these empirical findings the German Supreme Court (BGH) has rejected a justification of narrow parity clauses and declared them as illegal. In the absence of a free-riding argument, the theory of harm that ‘narrow’ parity clauses stifle intra-brand competition between different distribution channels and foreclose the market for the brokerage of hotel rooms through OTAs does not meet any justification. Additionally, the paper argues that even in the presence of free-riding, the transfer of wealth from hotels to OTAs is unjustified as ‘narrow’ parity clauses incentivise OTAs more than the risk they undertake.