Booking.com Decision

January 2017 Elif Mungan
% 0

Introduction

The Competition Board (“Board”) concluded its investigation with regard to the booking services provided by Booking.com B.V. (“Booking.com”) and by Bookingdotcom Destek Hizmetleri Limited Liability Company, operating as the Turkish representative of Booking.com. During its investigation, the Board has evaluated whether Articles 4 and 6 of Act No. 4054 on the Protection of Competition (“Competition Act”) were violated by Booking.com’s “best price guarantee” practices. As a result of the investigation, the Board decided that Booking.com violated Article 4 of the Competition Act and, therefore, an administrative fine of 2,543.992.85 TL[1] should be imposed on the undertaking concerned in accordance with Article 16 of the same Act.[2] The reasoned decision has not yet been published.

Grounds for the Administrative Monetary Fine

The Board decided that Booking.com’s agreements with accommodation facilities are within the scope of Article 4 of the Competition Act, since the agreements include articles regarding price parity and best price guarantees. Article 4 reads as “Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings that have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited.”

Booking.com could not benefit from the block exemption defined in Block Exemption Communique numbered 2002/2[3] due to the fact that its’ market share exceeds the 40% amount in the relevant market in which it provides services, and that are the subject of the vertical agreement. Furthermore, Booking.com could not benefit from the individual exemption, since it did not fulfill the conditions determined in Article 5 of the Competition Act. Therefore, upon its evaluation, the Board decided that Booking.com has violated Article 4 of the Competition Act, and imposed an administrative fine. It is also worth mentioning that the foreign authorities generally choose not to impose administrative fines in similar cases. Separately, Bookingdotcom Destek Hizmetleri Limited Liability Company did not receive an administrative monetary penalty as it has no decisive influence on the implementations that are subject to the investigation.

MFN Clauses

The recent activities of the antitrust authorities in the United States, the EU and Turkey indicate that they have a growing interest in the “most favored nation clause,” “most favored customer clause,” and “price parity clause” implementations (“MFN”).

By virtue of an MFN clause, the seller in principle commits not to offer more favorable prices to other customers.[4] Therefore, the buyer benefiting from the MFN clause guarantees that the seller offers the favorable prices or sales conditions that it provides to other customers, as well as to itself. The common application of the MFN clause is as follows: The seller undertakes that if it offers more favorable conditions to a buyer other than the one benefiting from the MFN clause, it will also offer the favorable conditions to the MFN customer[5]. In the conventional trade agreements, the MFN clauses are typically formed with regard to the price commitments. However, they may also relate to other terms and conditions of the agreements.

The MFN clauses are commonly found in a wide range of commercial agreements from long- term industrial supply to distribution arrangements. On the other hand, recently the antitrust authorities in the US, European Union and Turkey (as in the Booking.com and Yemek Sepeti Elektronik İletişim Tanıtım Pazarlama Gıda San. ve Tic. A.Ş.[6] (“Yemek Sepeti”) decisions) are interested in the MFN clauses in the platform agreements. Examples for these types of applications are as follows: MFNs in online travel agency sites, price comparison sites, and online marketplaces where the site operators wish to ensure that they can offer the lowest price on the market. In platform agreements, the MFN right is granted to the platform provider, and the customers that purchase goods or services from the platform are the indirect beneficiaries of the MFN clause. The platform provider’s interest is to increase its sales made through the platform (or increase the usage of the platform). Therefore, it obtains commission or advertisement income. The MFN clause here guaranties that the platform provider offers the lowest price to the customers with regard to the seller’s sale or services[7]. Accordingly, in our case, Booking.com is the platform provider, and the accommodation facilities (hotels) are the sellers.

The Competitive Impact of the MFN clauses

To date, the MFN clauses have not been evaluated as per se infringements. Indeed, the assessment of the competitive impact of MFN clauses is highly fact-specific, and largely depends on the party’s market positions, the characteristics of the market, and the manner in which the MFN clause is implemented. Accordingly, there are conflicting opinions with regard to the competitive impacts of the MFN clauses in the doctrine. It can be said that in line with almost all vertical restraints, the MFN clauses have both pro-competitive and anti-competitive effects.[8] The competitive effects may also vary depending on the fact that the MFN clause is formed as a narrow or wide MFN clause.

The pro-competitive effects of an MFN clause are as follows: (i) provides investment incentives to the buyer, (ii) reduces transaction costs, (iii) avoids the buyer to delay its purchase; therefore, provides the demand certainty in the market, (iv) as a consequence of the demand certainty, the seller is facilitated in making efficient production and capacity decisions and (v) avoids the free rider problems[9].

The anti-competitive effects of a MFN clause are as follows: (i) facilitates coordination, (ii) reduces price competition and results price stability, (iii) exclusion: raising rivals’ and entrants’ costs and (iv) increasing the seller’s bargaining power[10].

Booking.com Decision and MFN

As mentioned above, the reasoned decision has not yet been published. On the other hand, the short form decision points out two facts. Firstly, the Board determined the grounds of the infringement as Article 4 of the Competition Act instead of Article 6 of the same Act. The various competition authorities in the world generally evaluated the MFN clauses in the scope of the articles corresponding to Article 4 of the Competition Act (for instance, Article 101 of the Treaty on the Functioning the European Union). On the other hand, there is no obstacle for a MFN clause to be evaluated in the scope of Article 6. Indeed, we have recently seen the application of Article 6 in the Yemek Sepeti decision in which the Board imposed an administrative monetary fine on Yemek Sepeti, ordered it to end any type of MFC practices that prevent competing platforms to offer better or different conditions, and revise its agreements in such scope. The Board may have various reasons for not applying Article 6 in the Booking.com case, and the reasoned decision will certainly light the way.

Secondly, the Booking.com decision will be an important decision in terms of evaluating the competitive effects of the MFN clauses in the platform markets. The decision found that the MFN clauses in the Booking.com agreements are anti-competitive. At first instance, the MFN clauses may seem to be a positive arrangement for the consumers. This is because when the consumer visits Booking.com, hotels rooms are easily reserved with the lowest price guarantee. On the other hand, looking at the bigger picture, there may be different conclusions and, within that context, there are a number of facts that should be considered. For instance, whether these “lowest” prices that are applied in a platform that have the high market share, as consequence a floor price, therefore, result in the accommodation facilities being unwilling to offer lower prices to customers. If this is so, the MFN clauses may reason market entry obstacles. The Board’s grounds for this evaluation will be understood through the reasoned decision. Beyond any doubt, the reasoned decision will be a useful guide for the evaluation of MFN clauses in platform markets.

[1] Please see Regulation on Fines To Apply in Cases Of Agreements, Concerted Practices and Decisions Limiting Competition, and Abuse Of Dominant Position, Article 5 (1) (b), 5 (2) (a) and 5 (3) (a).

[2] Please see:

http://www.rekabet.gov.tr/en-US/News/Investigation-conducted-on-Bookingcom-BV-ve-Bookingdotcom-Destek-Hizmetleri-Limited-Sirketi-concluded (Access date: 17.01.2017).

[3] Block Exemption Communiqué on Vertical Agreements, Amended by the Competition Board Communiqué, No. 2003/3 and 2007/2, Numbered 2002/2.

[4] Vandenborre I., Frese, M. J, “Most Favored Nation Clauses Revisited”, European Competition Law Review, 2014, No:12, p. 558-593.

[5] Baker, Jonathan B. and Chevalier, Judith A., "The Competitive Consequences of Most-Favored-Nation Provisions" (2013), Articles in Law Reviews & Other Academic Journals, Vol 277.

[6] Please see:

http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fG%C3%BCncel%2fsorusturmalar%2fyemek+sepeti.pdf (Access date: 20.01.2017)

[7] Vandenborre I., Frese, M. J, “Most Favored Nation Clauses Revisited”, European Competition Law Review, 2014, No:12, p. 558-593.

[8] Vandenborre I., Frese, M. J, p. 588.

[9] Baker, Jonathan B. and Chevalier, Judith A., p. 22-24.; Vandenborre I., Frese, M. J, p. 589.

[10] Baker, Jonathan B. and Chevalier, Judith A., p. 22-24.

All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.

Other Contents

Newsletter Articles
Hub and Spoke Cartel in Comparative Law

The hub and spoke cartel, which is a relatively new type of violation in terms of Turkish competition law, is defined as the indirect exchange of information between two independent undertakings which are horizontal competitors on the supplier or retailer level, through another undertaking...

Competition Law April 2022
Newsletter Articles
The First Settlement Case in Turkish Competition Law

The settlement mechanism has only recently been introduced to Turkish competition law practice. It entered into force with the amendment made to the Law on the Protection of Competition (“Law”) numbered 4054 on 16.06.2020, and has been in effect for less than two years. In this relatively...

Competition Law April 2022
Newsletter Articles
The E-Marketplace Platforms Sector Inquiry Final Report and What It Brings

Due to their increasing share in the economy and rapid growth rate, e-marketplace platforms have come under the increasing scrutiny of the Turkish Competition Authority (“Authority”) as well as many competition authorities around the world...

Competition Law April 2022
Newsletter Articles
Amendments Introduced to the Communique Concerning the Mergers and Acquisitions Requiring Competition Board’s Approval

Pursuant to the Amendment Communiqué Concerning the Mergers and Acquisitions Requiring the Competition Board’s Approval (“Amending Communiqué”) published in the Official Gazette dated March 4th, 2022 and numbered 31768, certain amendments have been introduced...

Competition Law March 2022
Newsletter Articles
A New Glance at Online Sales: The Competition Board’s BSH Decision

The Competition Board (“Board”) has recently published a reasoned decision in which it evaluated BSH Ev Aletleri Sanayi ve Ticaret A.Ş.’s (“BSH”) request for negative clearance or exemption with regard to its practice of prohibiting authorized dealers from making sales through online marketplaces...

Competition Law March 2022
Newsletter Articles
E-Marketplace Platforms Industry Review Preliminary Report Part 2: “Shahmaran’s Story”

Shahmaran, a Mesopotamian myth, is believed to take place in Tarsus. According to the myth, the shah of snakes is the immortal and omniscient "Shahmaran." Shahmaran is described as a beautiful woman living in her cave with her snakes...

Competition Law February 2022
Newsletter Articles
Newsletter Articles
The Effects of the Recent Decision by the Turkish Competition Board on Market Chains and Their Suppliers

During the COVID-19 pandemic, competitive concerns about the pricing behavior of chain markets, manufacturers, and wholesalers engaged in the retail trade of food and cleaning supplies led to an investigation by...

Competition Law January 2022
Newsletter Articles
Newsletter Articles
Hub and Spoke Cartels
Competition Law November 2021
Newsletter Articles
E-Marketplace Platforms Industry Review Preliminary Report Part 1: “Captain, an object is approaching”

Digitalization, in particular, necessitates the rewriting of competition law rules. Competition law is at the center all questions regarding e-commerce and digital platforms. The aforementioned platforms, which have become prominent due to innovations in...

Competition Law November 2021
Newsletter Articles
Newsletter Articles
Settlement Regulation Enters into Force
Competition Law July 2021
Newsletter Articles
Newsletter Articles
The New Cartel Decision of the Competition Board
Competition Law September 2020
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
The File of Sahibinden.com; A Phoenix Story
Competition Law February 2020
Newsletter Articles
Newsletter Articles
Second Stage in Facebook File
Competition Law September 2019
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Newsletter Articles
Excessive Pricing
Competition Law June 2017
Newsletter Articles
Amazon Decision and E-Book Commitments
Competition Law June 2017
Newsletter Articles
Newsletter Articles
Tüpraş Decision and the Rebate Systems
Competition Law September 2016
Newsletter Articles
Newsletter Articles
Price / Margin Squeeze
Competition Law November 2016
Newsletter Articles
Newsletter Articles
Newsletter Articles

For creative legal solutions, please contact us.