THE IMPACT OF COMPETITION LAWS ON E-

COMMERCE AND SHARING ECONOMY

Remarks from the Italian experience in the Booking/Expedia investigation and Uber advocacy report

Alessandro Noce

Italian Competition Authority

The views expressed here are personal and do not necessarily reflect those of the Italian Competition Authority

20 November 2015 European Seminar on Competition Law Madrid

• In May 2014 the ICA, following complaints by the Italian Hotels Association, opened a proceeding against Booking.com and Expedia in order to investigate possible restrictions of competition (article 101 TFUE) related to the use of price (and others conditions) parity clauses in contracts stipulated between the main online travel agencies (OTAs) and their hotel partners.

• Main concern was the MFN clauses applied by the two OTAs to their hotel partners, to prices but also to other terms and conditions, including room availability

The Booking and Expedia case (1)

• A MFN or price parity clause is an agreement between a seller and an electronic platform that requires the seller to price on the platform its goods/services no higher than they are priced on other online platforms, on offline retailing channels, on suppliers’ direct sales channels (the same applies to other conditions)

• Potential efficiencies of MFN clause:

• Specific investments. Specific investments by OTAs have created innovative portals that have radically changed the industry offering new methods to book hotels that benefit consumers

• Free riding. The incentives to invest would be substantially reduced if hotels and other OTAs could free- ride on OTAs’ specific investments on their portals

The Booking and Expedia case (2)

• An MFN clause could soften both intra and inter-platforms competition:

• A platform with a Retail Price MFN clause will have an enhanced incentive to raise its fees to the sellers, because it knows that it won’t thereby be disadvantaged, in terms of retail prices, relative to other platforms (horizontal effect).

• In equilibrium, these higher fees will lead to higher retail prices within each platform (vertical effect)

• It could restrict entry at the retail level :

• The Retail Price MFN clause can disadvantage potential retail competitors by eliminating an entrant’s ability to win customers away from the incumbent through cutting its own margin, i.e. fee, and offering products/services at lower prices to final consumers.

The Booking and Expedia case (3)

• Relevant product market. ICA considered that the relevant market for the assessment of the parity clauses is the market for online hotel booking services, distinct from the market for offline hotel booking services.

• Relevant geographic market. As for the geographic dimension, the market was considered national given that Booking.com and Expedia operate with country specific websites and differentiate their commission fees based on the national borders.

• In 2013 online hotel booking through OTAs represented nearly 70% of the online channel (in terms of turnover of hotels), and [25-30]% of total hotel reservations. Room booking at the hotels website represents only [5-15]% of total hotel reservations.

The Booking and Expedia case (3)

International cooperation on the case

• Previous cases in

Germany and the UK (■)

• Cooperation between Italy,

France and Sweden (■) • Thanks to the ECN and the rules

of cooperation envisaged in Reg.

1/2003, France, Sweden and Italy

achieved a significant degree of

cooperation and fully aligned

their timely decisions

The Booking and Expedia case (4)

• During the investigation, Booking.com submitted commitments to the NCA’s in Italy, Sweden and France consisting in a significant reduction of the scope of the MFN clauses

• The revised MFN clauses will only apply to prices and other conditions publicly offered by the hotels through their own direct online sales channels, leaving them free to set prices and conditions on other OTAs and on their direct offline channels, as well as in the context of their loyalty programs

• Commitments affect: Competition between OTAs; Competition between OTAs and direct sales; Competition between OTAs and offline channels

The effect of commitments

• Commitment on Price Parity / Conditions Parity/availability parity: refraining from requiring hotels to enforce parity clauses on price and other conditions, included the number of rooms available, offered on any other OTA.

• To significantly increase competition between Booking.com and other OTAs in the online segment compared to the ex-ante situation.

• Commitment on offline channels: allowing hotels to offer equal or better conditions on offline channels than those offered on Booking.com, provided that these conditions are not published online or marketed online.

• This commitment is expected to provide hotels with the ability to use offline distribution channels in such a way to be more competitive against Booking.com and other OTAs.

• Commitment on hotel direct sales. Refraining from restricting unpublished conditions that hotels are able to offer, provided that these are not marketed online at the general public; Booking.com may prevent its hotel partners from offering better conditions if they are made available online to the general public.

• Commitments were appropriate in striking a balance between preventing potential restrictions while preserving operators’ ability to offer and develop innovative services

• ..and narrowed the scope of Booking’s parity clause which now is limited to creating a link between the on-line price and terms available on the hotel’s website, on the one hand, and on Booking’s platform on the other.

• Expedia did not present commitment; ICA then closed the case against Booking.com and left it open against Expedia (due to close by the end of March 2016)

• National Law are prohibiting MFN clause even in the restricted fashion: Loi Macron in France, draft law in Italy

The Booking and Expedia case (5)

• «Licenced» regular taxis and «authorized» Limousine services

• Secondary markets for both «licence» and «authorization»

• Taxi’ s Public Service Obligations, number of licence and tariff set by city councils;

• For Limo services no price regulation but the number of authorizations is subject to city councils’ planning;

• Territorial restrictions to Limo activity

• Hailing is permitted only for taxis;

• Limo must start and end each ride at the garage

• In Rome, around 8.000 taxi licences and around 1000 Limo authorizations …but other 5000 Limo drivers from other towns work in Rome in infringement of the law…..

The taxi and Limousine service in Italy

• In the last twenty years ICA suggested to liberalize the «non scheduled transport market»:

• by increasing the number of licences (providing for some form of compensation for licence owners);

•By removing all the restrictions to Limo drivers activity

•….but never succeded (strong lobbying by taxi drivers)

UBER in Italy (1)

• The entry of a disruptive innovation like UBER suddently made this debate very old -fashion

• When working with the UBER Platform, Limo Drivers cannot by definition comply with the territorial restrictions and «start and end each ride at the garage» rules

• The use of Uber services are equivalent to «hailing a taxi»

• possible interference with the Public Service Obligations related to taxi services

• Sector regulation (law 21/1992) became completely obsolete

• The entry of car sharing companies (car2go, enjoy) and ride sharing companies (bla bla car) made the whole picture even more complicated

UBER in Italy (2)

• The inadequacy of italian regulation to deal with innovative transport services:

• Milan Commercial Tribunal in may 2015 found that the app Uberpop was conducting an unfair competition vis à vis regular taxis and accordingly issued an ad interim measure banning Uber pop all over the Italian territory

• The Italian interior Ministry asked the «Consiglio di Stato» wheather local police should fine Uber Black and Uber Van drivers given they are in clear infringement of the law requiring to start and end each ride at the garage

• The «Consiglio di Stato» asked ICA an opinion on the subject from an antitrust perspective

UBER in Italy (3)

• On the 29° of September 2015 ICA released its opinion;

• The entry of Uber in Italy fostered innovation in the taxi industry;

• It increased the supply of non scheduled transport services to the benefit of final consumers

• A digital platform which links demand and supply of Limo services cannot by definition comply with the obligation to start and end the service at the garage

UBER in Italy (4)

• ICA suggested an interpretation of the laws regulating Limo service in Italy according to the general principle of freedom of economic activity (article 41 of Italian Constitution)

• New legislation is required in order to (lightly) regulate the non-scheduled transport services offered by digital platform

• Platforms should be registred in some official list

• Non professional drivers should comply with adequate safety standards and insurance contracts similar to those used by taxi and Limo services

UBER in Italy (5)

THANK YOU!