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Best-Price-Guarantees—Not As Good A Deal As They Seem?

Hotel portals operating in Germany recently found themselves in trouble with the Bundeskartellamt, which is the competition authority, when the president of the agency wanted to prolong a stay in a hotel and asked for the conditions on so doing. He was surprised to hear that the hotel was not permitted to offer a better price than the one he had found on the hotel’s portal.  The ground for this restriction was a contract with the hotel portal that included a “best-price-guarantee.”  There are two types of these price parity clauses.  The first, known as a wide clause, prohibits a supplier from offering a lower price deal anywhere else (portal or in person) than what it offers on the participating third-party website.  The second, known as a narrow clause, prohibits a supplier (such as a hotel) from offering a lower price deal on its own website than what it offers on the participating third-party website, such as Expedia.   The wide clause had been stricken down earlier and replaced with the narrow clause.  This latest inquiry in Germany tested the narrower clause.

On first sight, the so called “Best-price-guarantee” appears to be a good method for consumers to be certain where to book the cheapest rate for all sorts of products or services on the internet. However, in practice, it becomes clear that a vital competition –that is known to lower prices- is not available in this system. Portals selling on the internet oblige their customers who provide services and goods, not to offer their products or services with a lower price anywhere else then on their portal. Other portals have no incentive to offer the hotels a lower commission, as they would not be able to subsequently offer a lower price on the market. Result? The set price on the portal will be the most likely price offered on all other channels. Competition between the players in this market? Unlikely!

The narrow “best-price-guarantee” on the German market was therefore seen as an anti-competitive market restriction 1.  The question of whether the “best-price-guarantee” is a hardcore restriction concerning resale price maintenance, that means suppliers are not allowed to fix the (minimum) price at which distributors can resell their products, was not answered. Even under a market share of 30 percent, it could be forbidden to apply the “best-price-guarantee”. German competition authorities consequently went against HRS and booking.com, the most prominent portals in Germany. Even a modified version of the best price contract clause that aimed for more competition was forbidden. This clause allowed the portal’s contracted parties to sell their services cheaper on other portals, but not on their own online services. These contractual provisions were likewise considered a forbidden market restriction by the German authorities.   Booking.com, one of the German litigants, has stated that it strongly contests the decision and will appeal.

This problem was nevertheless not only seen in the area of hotel portals but likewise concerned the Amazon market place.  The Amazon market place included price parity clauses in their contracts, which prohibited the sellers from offering their products for a cheaper price on any other internet platform. It was feared by the German authorities that the market entry of new platforms might be hindered by price parity clauses. Amazon subsequently decided not to apply the price parity clauses in Germany. 

1 The concerned portals had a market share of more than 30 percent and were therefore not subject to the block exemption regulation that is possible Europe-wide.

In other European jurisdictions, there are tendencies to be strict about the wide clauses that were used. The newer decision on the narrower clause is not yet fully approved or restricted by other European states, although a large number of states have raised issues with its legality 2.  Clients with an active reselling presence on the Internet are advised to follow the developments in this area closely as other European states weigh in on best-price guarantees.   Price parity is not always good—it is the lynchpin of many price maintenance strategies.   Some are acceptable; some are not.  All need to be closely reviewed for each country in which it is being used.  

2  France, Italy, Sweden, Ireland, the UK, Poland, Greece, Denmark, Hungary, the Netherlands and Switzerland, as well as German competition officials have raised concerns.

For further information please do not hesitate to contact me.

Vera Gillessen, LLS 

Lungerich · Lenz · Schuhmacher 

Cologne

T. +49 221 130816-0

F. +49 221 130816-20

Gillessen@lls-law.de

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