Competition concerns in platform markets: Dissecting the approach adopted by the CCI in the MMT-GO order

The Competition Commission of India (CCI) recently passed a contravention order against Make My Trip-Goibibo (MMT-GO) and Oravel Stays (OYO) for violation of Sections 3 and 4 of the Competition Act, 2002. The Commission has not only imposed a combined monetary penalty of ₹392 crore on the contravention parties, but also directed the entities to undergo behavioural remedies as per the contravention found.

Background and facts of the case

Federation of Hotel & Restaurant Associations of India (FHRAI), Casa2 Stays (FabHotels) and Ruptub Solutions (Treebo) had filed information with the CCI against the opposite parties alleging contravention of provisions of the Act. The allegations suggested that MMT-GO is abusing its dominant position in the delineated ‘relevant market’ (RM) through imposition of one-sided terms on the partner hotels on the one hand, and indulging in predatory pricing and offering strategic deep discounts to the consumers on the other.

It was also alleged that MMT-GO has signed a confidential agreement with OYO wherein it gives OYO preferential treatment on its platform and players like Treebo and FabHotels are delisted. Based on the said information, the Commission ordered a detailed DG investigation into the matter and asked for a consolidated report on the same.

Decision of the Commission

The Commission held that the definition of the RM in the given case would be 'market for online intermediation services for booking of hotels in India’ and that MMT-Go is a dominant entity in the same. The Commission held that MMT-GO is abusing its dominance on multiple occasions in violation of provisions of the Act. It held that imposing wide rate and room parity clauses coupled with exclusivity clauses on the hotel partners amounts to contravention of Sections 4(2)(a)(i) and 4(2)(c) read with Section 4(1) of the Act. It further held that misrepresentation of information by MMT-GO where hotel partners who were delisted from the platform were still shown on the platform under the category ‘sold out’ amounts to exploitation of the hotels. Lastly, MMT-GO indulges in a web of practices including deep discounting which stifles competition in the market.

The Commission also held that certain clauses of the confidential agreement signed between MMT-GO and OYO are in contravention of the Act. The Commission held that such clauses not only provided preferential treatment to OYO on the MMT-GO platform, but also excluded its competitors like FabHotels and Treebo to be listed on the same platform. The said clauses have far-reaching consequences as OYO also mutually agreed not to list its properties, at least five days before the check-in date on other intermediaries like Booking.com and PayTM, which were direct competitors of MMT-GO. The Commission held that such terms of agreement result in amplification of factor (a) and (b) under Section 19(3) of the Act and thus, are in violation of Section 3(4)(d), i.e. ‘refusal to deal’, of the Act.

Analysis

The author submits that the Commission has correctly identified the importance of ‘relevant market’ in the given case. It is the first-step in the three-tier process to look into the allegations of abuse of dominant position. As broadly understood, the concept of ‘relevant market’ also lies at the interface of law and economics. The purpose is also to identify a constraint operating on the hypothetical monopolistic firm. The Commission delineated ‘online intermediation services for booking of hotels’ as the ‘Relevant Product Market’ (RPM) in the information which was in line with the observation made by it at the prima facie stage and also in agreement with the assessment done by the DG. The parties, in total, proposed four definitions of RPM where ‘booking of budget hotels using online intermediation services in India’ was the narrowest one while ‘booking of hotels in India’ was the broadest. Section 2(t) of the Act defines RPM. It reads as follows:

"(t) ”relevant product market” means a market comprising all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of characteristics of the products or services, their prices and intended use..."

It is worthwhile to mention that as per the said provision, the concept of substitutability has to be determined from the lens of the ‘consumer’. As per Section 2(f) of the Act, ‘consumers’ may be further classified into two categories - ‘mid-consumers’ and ‘end-consumers’. The DG, while looking into the question of substitutability, collected data from the mid-consumer side, i.e. hotels.

The Commission, while looking into the DG report, suggested that the case in hand was filed by the hotels (mid-consumers), and therefore, some sort of preference should be given to their standpoint in contrast to that of the end-consumer. Even though it may be prudent to suggest at this stage that the investigator ought to conduct an empirical analysis on the end-consumer side as well, there is equal merit in suggesting that unlike in foreign jurisdictions like the US and Ireland, there is a separate institution in India, in the form of a three-tier consumer forum, to look into the end-consumer dispute. The Commission ought to dedicate its resources towards commercially-sensitive disputes from the point of economically efficient distribution of available resources.

This position is further buttressed through the provisions of the Competition (Amendment) Bill, 2022 as pending before Parliament. All in all, the CCI was able to rightly balance the plausible difference in the opinion in relation to the interpretation of the idea of ‘substitutability/ interchangeability’ from the perspective of mid-consumers and end-consumers while concluding the definition of RM.

The legislative text for determination of dominance was given due consideration. As far as the third, and the most contentious, step in the case was concerned, i.e. determination of abuse of the dominant position, it was the case of the informants that the respondents were indulging in a host of practices which were in contravention of the Act including imposition of pay and room parity clauses on the hotel partners, predatory pricing, deep discounting, granting preferential treatment to some and delisting others and charging high commission rate among others.

The author submits that the Commission correctly placed reliance on the overall jurisprudence of competition law before concluding that such parity clauses in the given case are in contravention of the Act. The author further submits that the response given by MMT-GO stating that parity clauses are required to discourage the practice of free-loading is lackadaisical in nature as a potential free-loading consumer can well check the best available prices of a hotel on MMT-GO and book the same property at a negotiated rate through direct offline mode.

Another key aspect in the case was allegations related to exclusivity clauses as imposed by MMT-GO on the hotel partners. As per section 4(2)(a)(i) of the Act, the dominant entity is prohibited to impose unfair and discriminatory conditions in the market. The said ‘unfair’ standard is inclusive of ‘exclusive’ and ‘exploitative’ terms and conditions. Based on the material available on record, it was established that the said platform restricted hotel partners from listing their properties on other portals which not only restricted competition in the market of OTAs but virtually resulted in reduction of consumer choice as well.

As far as the issue of violation of Section 3(4) of the Act is concerned, the author is of the opinion that the Commission could have further augmented the ‘minus factors’ as mentioned in Section 19(3) of the Act while assessing Appreciable Adverse Effect on Competition (AAEC). Even though the contents of the commercial agreement as signed between MMT-GO and OYO were kept confidential, the relevant aspects as dwelt by the Commission would demonstrate that there was no barrier to entry created by the said arrangement.

Other comments

The author is of the opinion that the reasoning adopted by the CCI in the MMT-GO case is likely to form the bedrock of its intervention in other digital marketing companies’ cases. It is publicly known that the CCI is currently looking into competition concerns arising out of the operations of the major tech players like Google, Amazon, and WhatsApp and the same is now more of a policy concern. The law laid down by the Commission in this order would certainly have a persuasive value, if not the ratio. The Competition Act, 2002 is at an amendment stage where the Competition (Amendment) Bill, 2022 is currently under consideration of Parliament. There is talk of enacting a separate legislation to regulate Big Tech, on the lines of Digital Markets Act (DMA) in the EU, as well.

Conclusion

The author is of the opinion that the CCI has been able to display a balanced approach when it comes to showcasing its understanding of the nuances of the two-sided platform markets. As the maxim goes, justice must not only be done, but must also be seen to be done. It is the second time that the Commission has passed a detailed order in the digital tech industry since its inception and the detailing given by it shows its evolution. The proactiveness can also be determined by the fact that the respondents voluntarily agreed to relist the informants on its platform which is more of an exception rather than the norm in a non-cartel case. The said development is a step ahead in economically efficient distribution of the available resources.

Bhaskar Simha LN is a Senior Resident Fellow at the Centre for Competition Law and Economics (CCLE). He was assisted by Ishita Khandelwal, who is a Research Intern at the Centre.