Abstract
Presenting recent cases and identifying potential economic effects of price-parity clauses, this note aims at evaluating certain business practices which have been employed by several internet platforms. Firstly, it provides a brief overview of developments in the Amazon case and the HRS case: both the Amazon Marketplace and the HRS platform compete with other sales channels and have imposed price-parity clauses, prohibiting their members from offering better sales conditions elsewhere. Secondly, this note summarizes economic insights on price-parity clauses, building on a particular game-theoretic model that matches certain characteristics of these “platform markets” and exposing further potential effects that have been (partly) identified by previous literature in related contexts.
This note was written during the author’s time as a research assistant at the University of Würzburg. The views expressed here are strictly those of the author and should not be attributed to the Bundeskartellamt.
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Notes
- 1.
In 2011, more than 75 % of all German households had access to the Internet. 83 % of the respondents to a survey conducted in 2011 among German households that used the Internet claimed that they searched for information on products and services on the Internet; cf. Statistisches Jahrbuch 2012, p. 205.
- 2.
In 2012, online sales made up an average share of around 10 % of all retail sales in Europe, cf. e.g. http://www.retailresearch.org/onlineretailing.php (accessed 2 April 2013).
- 3.
Note that platforms like Amazon Marketplace or HRS employ the “agency model”: sellers set prices and the platform charges certain fees or commissions. However, platforms may also use a mixture of the agency model and the merchant (or wholesale) model, competing with sellers (cf. e.g. Muthers/Wismer, Why do platforms charge proportional fees? Commitment and seller participation; SSRN Discussion Paper (2013), available at: http://ssrn.com/abstract=2204498 (accessed 2 April 2013)). The following discussion abstracts from these issues.
- 4.
http://www.amazon.co.uk/gp/help/customer/display.html?ie=UTF8&nodeId=200458310 (accessed 2 April 2013); Amazon has also applied a similar rule on its other (country-specific) European platforms.
- 5.
Cf. Munich District Court, file no. 37 O 7636/10, 3 May 2010.
- 6.
- 7.
Cf. http://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2013/20_02_2013_Amazon (accessed 24 April 2014).
- 8.
http://www.hrs.com/web3/showCmsPage.do;?client=en&pageId=standard-01869 (accessed 2 April 2013).
- 9.
Cf. http://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2012/10_02_2012_HRS (accessed 24 April 2014). The Bundeskartellamt continued to view HRS’s best price clause critically and was liaising closely with its foreign colleagues in this matter, cf. http://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2013/25_07_2013_HRS (accessed 24 April 2014). At the end of 2013, the Bundeskartellamt found that HRS's best price clause violated competition law, cf. Bundeskartellamt, case B9-66/10, decision of 20 December 2013.
- 10.
Cf. Düsseldorf Higher Regional Court, file no. 33 O 16/12, 15 February 2012.
- 11.
The following classification goes back to a report prepared by Laboratorio di economia, antitrust, regolamentazione (Lear) for the Office of Fair Trading. The Lear Competition Note “Price Relationship Agreements: Economic Analysis and Implications for Competition” (Nov. 2012, available at: http://www.learlab.com/pdf/lcn_pra_final_textefigures_1354270080.pdf) (accessed 2 April 2013) summarizes the initial report “Can ‘Fair’ Prices Be Unfair? A Review of Price Relationship Agreements”.
- 12.
Ibid., at p. 5.
- 13.
The payment card literature distinguishes between “no-discrimination rules” and “no-surcharge rules”. However, in theoretical models, a binding no-surcharge rule usually has the same effect as a no-discrimination rule: preventing sellers from price discrimination. In the following, the term “no-discrimination rule” is used.
- 14.
With respect to price-parity clauses, the following analogy between the payment card framework and e-commerce may be drawn: different means of payment correspond to different sales channels, and a potential surcharge for card use would reflect price discrimination between channels.
- 15.
Cf. Gans, Mobile application pricing, (2012) 24 Information Economics and Policy 52.
- 16.
Cf. Rochet/Tirole, Cooperation among competitors: Some economics of payment card associations, (2002) 33 The RAND Journal of Economics 549.
- 17.
Cf. Wright, Optimal card payment systems, (2003) 47 European Economic Review 587.
- 18.
Cf. Schwartz/Vincent, The no surcharge rule and card user rebates: Vertical control by a payment network, (2006) 5 Review of Network Economics 72.
- 19.
Interestingly, legislation on no-surcharge/no-discrimination rules considerably differs across countries. While imposing such rules is prohibited in the EU, member states may still generally prohibit surcharging card transactions (by law); cf. Payment Services Directive 2007/64/EC ([2007] OJ L 319/1), Art. 52(3). In the US, card networks are allowed to impose no-surcharge rules in most states.
- 20.
Cf. Bolt/Jonker/van Renselaar, Incentives at the counter: An empirical analysis of surcharging card payments and payment behavior in the Netherlands, (2010) 34 Journal of Banking & Finance 1738; Jonker, Card Acceptance and Surcharging: the Role of Costs and Competition, (2011) 10(2) Review of Network Economics, Article 4.
- 21.
For a discussion, cf. e.g. Rysman, The economics of two-sided markets, (2009) 23(3) Journal of Economic Perspectives 125; Wright, One-sided logic in two-sided markets, (2004) 3 Review of Network Economics 44, illustrates that “one-sided logic” typically does not apply in two-sided market settings.
- 22.
Cf. Shy/Wang, Why do payment card networks charge proportional fees? (2011) 101 American Economic Review 1575; Wang/Wright, Ad-valorem platform fees and efficient price discrimination, FRB Richmond Working Paper 12-08 (2012), and Muthers/Wismer (supra note 3).
- 23.
For a survey on vertical restraints, cf. Rey/Vergé, Economics of vertical restraints, in: Buccirossi: Handbook of antitrust economics, MIT Press, 2008.
- 24.
The following discussion is inspired by the Lear Competition Note and the respective initial report (supra note 11).
- 25.
However, in particular when talking about platform businesses where network effects may play an important role, it is not clear whether more competition results in higher welfare – a few large platforms may operate more efficiently (realize higher network effects and choose a more desirable fee structure) than a higher number of smaller platforms.
- 26.
The basic idea behind this effect goes back to Hay, Oligopoly, shared monopoly, and antitrust law, (1981–1982) 67 Cornell Law Review 439, and Salop, Practices that (credibly) facilitate oligopoly coordination, in: Stiglitz/Mathewson, New developments in the analysis of market structure, MIT Press, 1986, pp. 265–294. Both studies illustrate that most-favored-treatment clauses can sustain supra-competitive oligopoly prices.
- 27.
For an introduction to the theory of collusion, cf. e.g. Chapter 4 in Motta, Competition policy: theory and practice, Cambridge University Press, 2004.
- 28.
Note that HRS combines its price-parity clause (imposed on hotels’ room rates) with a best price guarantee (offered to hotel guests who book through HRS). This practice seems reasonable, as it may signal a low-price image (makes customers aware that hotels are not allowed to offer better rates elsewhere) and it serves as a monitoring device (customers are more likely to report lower prices in other channels). For a related analysis of agreements between parties as signals of low prices, cf. Moorthy/Winter, Price-matching guarantees, (2006) 37 RAND Journal of Economics 449.
- 29.
For an analysis of the interplay between agreements between parties and consumer search, cf. Janssen/Parakhonyak, Price matching guarantees and consumer search, (2013) 31 International Journal of Industrial Organization 1.
- 30.
This idea is directly related to the service argument presented by Telser, Why should manufacturers want fair trade? (1960) 3 Journal of Law and Economics 86. To a certain degree, price-parity clauses exhibit similarities with resale price maintenance (RPM). However, note that under RPM, a manufacturer fixes an absolute price level, while price-parity clauses only impose pricing relativities. For insights on RPM, cf. e.g. Mathewson/Winter, The law and economics of resale price maintenance, (1998) 13 Review of Industrial Organization 57.
- 31.
Again, cf. Rey/Vergé (supra note 23).
- 32.
Cf. Wismer, Intermediated vs. direct sales and a no-discrimination rule; BGPE Discussion Paper No. 131 (2013), available at: http://ssrn.com/abstract=2212605 (accessed 2 April 2013). This section builds on the Discussion Paper.
- 33.
The motivation for this assumption is the following: in a multi-channel context, a “billboard effect” is likely to arise – being active in one channel may lead to additional sales in another channel. Furthermore, this assumption also is in line with the reasoning applied by the Düsseldorf Higher Regional Court in its injunction against the HRS price-parity clause (supra note 10).
- 34.
In particular, a refusal to sell in one channel leads to a discrete loss of all potential customers who select their favorite product in this channel (these consumers are assumed not to be aware of the seller’s offer at all).
Acknowledgment
The author thanks Florian Bien, Johannes Muthers, Norbert Schulz, and participants of the conference “Competition on the Internet” for helpful comments.
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Wismer, S. (2015). A Note on Price-Parity Clauses in Platform Markets. In: Surblytė, G. (eds) Competition on the Internet. MPI Studies on Intellectual Property and Competition Law, vol 23. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-55096-6_4
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