DP14771 Price Parity Clauses for Hotel Room Booking: Empirical Evidence from Regulatory Change

Author(s): Sean Ennis, Marc Ivaldi, Vicente Lagos
Publication Date: May 2020
Keyword(s): Digital Platforms, Hotel Industry, Impact Evaluation, Most favored customer, Most favored nation, Online Travel Agency, Price Parity Clause
JEL(s): K21, L14, L42, L81
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14771

This paper examines the impact of most favored nation (MFN) clauses on retail prices, taking advantage of two natural experiments that changed vertical contracting between hotels and major digital platforms. The broad E.U. intervention narrowed the breadth of "price parity" obligations between hotels and major Online Travel Agencies (OTAs). Direct sales by hotels to customers subsequently became relatively cheaper. Comparisons with hotel pricing outside the E.U. confirm the reduction in prices for mid-level and luxury hotels. France and Germany went further and eliminated all price-parity agreements. This stronger intervention was associated solely with a significant additional price-reducing effect for mid-level hotels in Germany. Overall, wide MFNs are associated with higher retail prices. Regulating MFNs reduced prices with primary effects coming either from the narrow price-parity intervention or, perhaps, from direct sales becoming cheaper than OTAs in both E.U. and non-E.U. countries, and, interestingly, not from complete elimination of MFNs.