How the CCI has erred in punishing Make My Trip-Goibibo and OYO

The Competition Commission of India (CCI) would appear to have erred in its order slapping fines totaling nearly Rs. 400 crore against Make My Trip-Goibibo and IPO-bound chain OYO for anti-competitive conduct on identifying the relevant market, on determining competitive injury and on the relevant turnover for levying fines.

Internet platforms compete globally. In India, global giants Expedia and Booking compete with MMT-Go and other platforms. When Indians travel abroad, and look for hotels abroad, MMT-Go competes with Expedia and Booking. It is essential for an online travel agency such as MMT-Go to be able to compete with global giants to survive in India, as well as compete abroad. This perspective is absent from the CCI ruling.

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Three kinds of charges were raised, in the main, against MMT-Go and Oyo. One is that MMT-Go insists on price and room parity (a hotel that quotes a particular rate to MMT-Go should not quote a lower rate to another platform or its own online booking site, and a hotel that has a room to offer cannot deny its booking on MMT-Go while accepting its booking on another platform). Another is that MMT-Go and OYO have entered into a preferential agreement, as a result of which OYO is preferentially displayed and booked on the MMT-Go platform, and some other franchises are excluded from listing. Three, MMT-Go charges the hotels, whose rooms are booked on its platform, excessive rates of commission.

There are sundry other charges, such as predatory pricing by means of large discounts offered by MMT-Go, a service fee charged and pocketed by MMT-Go without sharing with the hotels, and excessive consulting fees by OYO.

Selling below cost is the name of the game in online commerce. Whether medicines, health check-ups, taxi rides, instant deliveries of grocery, fresh meat and fish or tie-ups with manufacturers to offer discounts disguised as interest-free loans to finance purchases for periods extending to 24 months, most online businesses offer discounts that would qualify as predatory pricing, if predatory pricing is defined as selling something below a viable price so as to corner the market and kill the competition. However, such practices only serve, for the most part, to shower subsidies on consumers — in effect, transfers from venture capital to consumers, justified as customer acquisition cost — without killing off competition: new entrants crop up, sooner or later, with venture capital backing all too willing to suffer larger capital burn rates.

If MMT-Go levies a charge for its services, that its online customers are prepared to pay, what is anti-competitive about it? And what claim do hotels have to any share of it? The online travel agency’s revenue comprises such service charges and commissions from hotels/airlines for whom bookings are done on its platform. To count the value of hotel bookings as part of the booking platform’s revenue makes no sense. The hotel rent is a pass-through item on the booking platform’s accounts, accruing to the hotels in question. It is wrong for the CCI to levy a fine as a proportion of the turnover defined to include the rent component.

The charge of excessive consulting fees by OYO is frivolous. For a hotel to belong to a franchise, it must meet minimum standards of quality and service, some markers of franchise identity. If this calls for advice, and the advice has to be paid for, what is wrong with that? If the cost of such franchising is known in advance, it is a straightforward business calculation, whether the increase in business arising from being part of the franchise network is worth paying the cost of being part of the franchise.

Les us look at the main charges. In platform businesses that generate revenue on both sides of the platform, fairness, besides the logic of competition, calls for non-discriminatory treatment of consumers on either side of the business. So, it was wrong for MMT-Go to discriminate against several hotel chains in favour of OYO. In any case, MMT-Go does not dispute this and has relisted hotels and chains it had taken off its platform.

The charge of extracting commissions up to 40% is serious. Surprisingly, the CCI has not tried to cap the commission the platform can charge. This seems remiss. After all, a small hotel is at the mercy of a powerful distribution channel and by the time competition catches up with MMT-Go to crunch the commission charged to a reasonable level, the hotel could well have given up the ghost.

It is strange that the CCI finds price and room parity demands to be unfair. If a hotel favours a particular platform with a cheaper tariff quote or gives it preferential room access over other booking platforms, it is the hotel practising unfair conduct. When an online booking platform demands that it should not face such discrimination, how is that unfair?

The price that the hotel quotes to the platform is what should be uniform, subject to volume discounts that constitute normal commercial practice. To those prices, the booking platform should be able to add commissions or discounts funded out of its own pocket. If the price quoted to online booking platforms is uniform, then platforms would compete using lower commissions or outright discounts that affect their profitability, without affecting the hotel.

The notion that online platforms are oligopolies is mistaken. Many new platforms compete in that space now, apart from global majors. Social media advertising and online searches offer brisk competition, too. It is only through contrived definitions of the marketplace can the CCI detect market dominance for an online booking platform.

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