Platform price parity clauses and market segmentation

Abstract

Price parity clauses (PPCs) are widely adopted by online platforms to force client sellers not to lower their prices elsewhere. We investigate under what conditions online travel agencies (OTAs) decide to apply PPCs, and how this affects hotels' listing decisions on OTAs. We find OTAs adopt PPCs when there is a sufficiently large competitive pressure in the market, either between OTAs, or between hotels (or both). PPCs allow OTAs to charge higher commission fees to hotels, which can respond by delisting from certain OTAs, thereby segmenting the market. We also find that consumers and hotels generally lose out with PPCs.

Platform Price Parity Clauses and Consumer Obfuscation*

“…Calzada et al . [2022] focus on the online travel agents market and analyze segmentation issues. Hotels can choose to delist from a platform and sell directly through their own distribution channels.…”

“…Boik and Corts [2016], on their part, find that prices are always higher under PPCs, but it might be that this effect is so strong that even platforms are worse in equilibrium. Calzada et al [2022] focus on the online travel agents market and analyze segmentation issues. Hotels can choose to delist from a platform and sell directly through their own distribution channels.…”