TMI Blog2019 (11) TMI 1199X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, and submit a report to the Commission, within 150 days. During the course of investigation, if involvement of any other party/entity is found, the DG shall investigate the conduct of such other party/entity(s) who may have indulged in the said contravention. It is, however, made clear that nothing stated herein shall tantamount to an expression of final opinion on the merits of the case and the DG shall conduct the investigation without being influenced by any observations made herein. - Case No. 14 Of 2019 - - - Dated:- 28-10-2019 - Ashok Kumar Gupta, Chairperson, Ms. Sangeeta Verma And Bhagwant Singh Bishnoi, Member Nidhesh Gupta, Sr. Adv. Ms. Rukhmani Bobde, Ms. Sonal Gupta, Ishan Nagar, Ms. Malvika Bhanot, Advs. Sunil Gandhi, CS and Ms. Preeti Bhardwaj, Legal Executive for the Appellant. Ramji Srinivasan, Sr. Adv. Dhruv Agarwal, Ms. Ishika Rout, Abhishek Tiwari, Ms. Simran Dhir, Ms. Sylona Mohapatra, Advs. Kamal Avutapalli and Saurabh Taneja for the Respondent. ORDER Directions for investigation under Section 26(1) of the Competition Act, 2002 1. The present information has been filed under Section 19(1)(a) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aced by the hotel industry and wanted to explore the possible ways of resolving those issues through regular interactions and meetings between the Informant and MMT. 5. Further, the Informant, vide a letter and an email dated 10.12.2018, pointed out to OYO the issues pertaining to its operations, to which, OYO replied stating that the claims and allegations made by the Informant were misguided and misplaced and that they were willing to discuss the issues to find an amicable solution. 6. On 12.12.2018, Kolhapur Hotel Malak Sangh (a member of the Informant) sent a letter to MMT highlighting certain points for consideration, to ensure fair business relationship with all the partner hotels of the Informant. The points inter-alia related to fixation of commission rate for all partner hotels; elimination of Performance Linked Bonus (PLB) or other additional promotional incentives which indirectly add to fixed commission; prohibition of discrimination and offering of heavy discounting on hotel room tariffs over above fixed commission; remittance of advance payments etc. 7. Further, the Informant issued various press releases between 13.12.2018 to 17.12.2018, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only for 9 rooms. Thus, the price of the tenth room is in effect part of the commission/brokerage which MMT-Go is otherwise charging from such hotels. Such commission turns out to be around 22-40% (from standalone hotels) which is grossly disproportionate to the commission charged by other OTAs like booking.com and yatra.com which charge a standard 15% commission. This is alleged to be in violation of Section 4 of the Act. 12. It has been further alleged that MMT-Go have imposed a price parity in their agreement/contract with hotel partners whereby the hotel partners are not allowed to sell their rooms at any other platform or on its own online portal at a price below the price at which it is being offered on MMT-Go's platform. However, MMT-Go in its own discretion can fluctuate the prices of such hotel rooms. Further, the hotel partners are mandated to observe room parity whereby they cannot refuse to provide rooms on MMT-Go at any given point of time if the rooms are being provided on any other platform. These restrictions are alleged to be in violation of Section 4 of the Act. 13. The Opposite Parties have also been alleged to be indulging in predatory pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... discriminatory as it is levied on certain hotels. It has been alleged that the hotel partners, who are once registered with the Opposite Parties, have no option to exit the relationship. Even when a hotel makes a request to be removed from their platform/portal, the hotel, instead of being removed from the platform, is shown as no rooms available or sold out , which severely affects the business of the hotels. It has been further alleged that the Opposite Parties artificially creates demand-supply gap on its platform by resorting to tactics like fake bookings wherein rooms of some hotels are shown as pre-booked on their website. These bookings are later cancelled just a day or two before the actual date of occupancy and the prices are manipulated accordingly. All these practices have been alleged to be abuse of dominant position by the Opposite Parties within the meaning of Section 4 of the Act. 16. Apart from the allegations under Section 4 of the Act, the Opposite Parties are alleged to have cartelized for charging a commission higher as compared to the usual commissions charged by other OTAs. The rate of the commissions levied by MMT and OYO on the hotels are similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was alleged that Go-MMT's market share in such market is miniscule (i.e. less than 5%), based on reports made by India Brand Equity Foundation (IBEF) and written submissions in the aforementioned combination. Further, even in a narrower segment for sale of hotel rooms in India, their combined share is less than 5%. It was further submitted that the Informant's reliance on market share specified in Go-MMT's investor presentation (wherein their combined market share has been stated to be 63%) is misleading as the calculation does not take into account the sales by all travel agents such as PayTM, HappyEasyGo, Thomas Cook etc. and offline sales. Based on such averments, MMT-Go contended that it does not hold a dominant position in the market. 23. Further, MMT-Go objected to the allegations pertaining to charging of exorbitant commission is incorrect as they are currently charging commission of less than 25% to majority of its hotel partners. It was further averred that each agreement with the hotel partners is individually negotiated by MMT-Go, and the Informant is attempting to discourage individual commercial negotiation through false allegations and coercio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per OYO, is opposing OYO's efficient business strategies whereby standardized quality services have been made available at affordable prices. OYO further argued that the Informant has adopted different market definitions to suit its inconsistent arguments. 28. OYO contested all the allegations raised by the Informant. With regard to charging of exorbitant commission, OYO submitted that the commission charged by it from hotel partners is commensurate with the economic value of its services. Its net take rate, amount received after costs, is approximately 15-20% (not more than 25%, unless large amount of capital expenditure is invested). On the contrary, OYO alleged that the demand for fixed commission by the Informant is an attempt to use its bargaining position to ensure hotels do not compete with each other. 29. As regards the allegations pertaining to fake bookings and check-ins, OYO submitted that such allegations are baseless because on any cancelled booking, OYO does not earn any money and has to additionally make up the difference to hotel on the minimum guarantee amount. On the contrary, OYO alleged that upon digital audits of its hotel partners, it h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t position within the meaning of Section 4 of the Act. Thus, based on the decision of the Commission in the Fast Track Call Cabs matter, the contention of the Informant regarding abuse of dominant position by the Opposite Parties collectively is liable to be rejected, as being beyond the legal framework of Section 4 of the Act. 33. With respect to alleged unilateral abusive conduct of MMT-Go and OYO, relevant market(s) needs to be delineated, before assessing their respective dominance and eventually, the abuse of such dominance. Relevant market 34. Relevant market under the provisions of the Act constitutes a 'product/service' dimension as well as a 'geographic' dimension. Relevant product market comprises all those products or services which are regarded as interchangeable or substitutable by the consumer, by reason of their characteristics, price and intended use. Thus, identification of consumers and their perception with regard to interchangeability among products or services is the most important parameter for defining relevant product market. All the Opposite parties, i.e. MMT, GoIbibo and also OYO, essentially operate as platforms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... value added services such as use of filters to make search more effective and targeted, incorporating customer reviews to help potential customers, online payment options etc. Thus, by reducing the transaction and search costs and introducing varied choices with price comparisons, these apps offered an important breakthrough to the traditional mode of booking. In return, these aggregators charge a commission from the hotel/property owners which may comprise a listing fee and/or a transaction fee based on certain completed transactions using the services. 36. The second wave of transformation in the hospitality industry was marked by the emergence of franchise model where budget hotel chains expanded rapidly adopting asset light operating models, standardising the largely unorganised segment. The standalone budget hotels partnered with known brands to take advantage of the latter's brand value. OYO, which entered the market in 2013, initially started with the partial inventory model wherein it used to lease a part of the partner hotel's inventory beforehand, organize those hotel rooms under its brand name (OYO Rooms) and these partner hotels used to provide standard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranchisee hotels to reap the benefits of OYO brand. In return, OYO takes a commission or share in the revenues while assuring minimum monthly guarantee of revenues to the partner hotel. 40. Considering the aforesaid, the relevant product market in the present case appears to be 'Market for franchising services for budget hotels'. 41. As regards the relevant geographic market, the Commission is of the view that though the Informant is based in Delhi, OYO operates on a Pan-India level and in the franchising market, it seems to face the same/similar competitive constraints and homogenous conditions of competition throughout India. There is nothing on record to suggest that the relevant geographic market needs to be restricted to a particular region/city or State. The relevant geographic market, for the purpose of the present case, has been taken to be India. 38. The market dynamics does not seem to have changed since the passing of that order (i.e. 31.07.2019) to warrant a different delineation of relevant market. Thus, based on the aforesaid observations made in Case No. 03 of 2019, the Commission is of the view that the relevant market with regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ease in the commission rates by all platforms, such a significant proportion of hotels would move completely offline or to direct supply so as to make such an increase in commission unprofitable for a hypothetical monopolist. Moreover, the online mode of distribution through third party platforms, which provide the facility to search, compare and book at the same place, is characteristically distinct from the services that the offline mode such as travel agents provide. The predominant nature of their services, at this stage, appears to be that of intermediation and thus, the Commission is of the view that the relevant market for MMT-Go would be 'market for online intermediation services for booking of hotels in India'. 42. In these two relevant markets as delineated above, the position of the Opposite Parties respectively will be assessed. Assessment of Dominance 43. It is submitted by the Informant that the merger of MMT and Go-Ibibo has led to their position of dominance in the relevant market, which has empowered them to operate independently of the competitive forces prevailing in the relevant market. The Informant has provided several facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beyond the OTAs, the Commission does not find much merit in such an argument. The Commission is not convinced that direct suppliers qualify to be a part of the same relevant market, given that no intermediation is involved in such transactions. Further, other players e.g. PayTM, HappyEasyGo, Thomas Cook, who have been claimed by MMT-Go to have been posing competitive constraints on them, also do not appear to have any significant market presence in the relevant market. In the relevant market delineated by the Commission, MMT-Go prima facie appears to be dominant. 48. As regards the dominance of OYO, the Commission refers to its observations and findings in Case No. 03 of 2019 [RKG Hospitality Pvt. Ltd. v Oravel Travels Pvt. Ltd. (OYO)], given vide order dated 31.07.2019, wherein the position of OYO in the 'market for franchising services for budget hotels in India'' was assessed in detail. 49. Based on the information provided by the Informant in Case No. 03 of 2019 (supra) and information available in public domain, the Commission was of the view that though OYO 'is a significant player in the relevant market, presently it cannot be unambiguously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction. Wide restrictions, on the other hand, restrict a supplier from charging lower prices or providing better terms on their website, as well as through any other sales channel, including other OTAs. Further, such clauses are generally imposed as a vertical restraint by a platform on the sellers/service-providers selling through the platform. Further, if the platform is dominant, it may also amount to imposition of an unfair pricing condition. 55. The hoteliers and MMT-Go are in a vertical relationship as the latter provide online booking services and thereby essentially function as distribution platforms for former. As per clause 1.3 of the agreement entered between hoteliers and MMT-Go, [t]he Hotel shall maintain rate parity, and room availability parity between Facilitators and other travel agents, other sales channels of third parties and the Hotel itself . Apparently, the room and price parity restriction envisaged in Clause 1.3 of the agreement between hotelier and MMT-Go are broad/wide in nature as the hotel partners are obliged to maintain room as well as price parity between platform and any other sale channel (other OTAs, channels of the third parties and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement between OYO and MMT entails preferential treatment to OYO and consequent exclusion of Treebo, Fab hotel and any other hotel chain and if so, the effect of the same on competition merits investigation. Predatory Pricing: 59. According to the Informant, the Opposite Parties are indulging in deep discounting and predatory practices by charging below the average room rate. Deep discounts are often offered in platform markets to establish network effects. Since MMT-Go has been prima facie found to be in a dominant position in the relevant market and they have been in business since the year 2000, such practice by them does not appear to be introductory or aimed at building the network. Though at this stage information on the cost structure of MMT-Go, hotels and the prices charged by hotels and discounts offered by MMT-Go is not available with the Commission, this issue may need to be investigated along with other issues which have already been elucidated above. Exorbitant/unfair Commissions : 60. Besides aforesaid issues, the Informant has also raised issues like charging of excessive commission by the Opposite Parties from the hotels. As per cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reate demand-supply gap on its platform and accordingly fluctuates prices. The Commission finds such issues to be potentially abusive and since MMT-Go has been found to be dominant, they need to be investigated. Though the Commission has taken note of the justifications offered by MMT-Go, given its market power owing to the dominant position, the Commission finds it appropriate to test the veracity of the justifications offered by them. 62. As regards the allegation of fake bookings against OYO, the Commission refrains from returning any prima facie finding given that OYO has not been found to be prima facie dominant in the relevant market in which it operates. Hotel Service Fee: 63. It has been pointed out that MMT charges a service fee from the consumer at the time of booking the rooms in the name of the hotels, which is pocketed by MMT. Further, the charging of service fee by MMT is alleged to be discriminatory as such fee is levied on certain hotels and allegedly not levied on high-end of chain hotels. Since MMT is prima facie found to be dominant, this conduct of MMT merits investigation. 64. Based on the aforesaid discussion, the Commission ..... X X X X Extracts X X X X X X X X Extracts X X X X
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