Substitution between online distribution channels: Evidence from the Oslo hotel market

Abstract

Using an exhaustive database of bookings in one large chain of hotels active in Oslo (2013-2016), we estimate a nested-logit demand model that allows us to evaluate substitution patterns between online distribution channels. Making use of the chains' decision to delist from Expedia's platform, we can then compare simulated and actual effects of such an event on prices and market shares and identify ways to improve on simulated counterfactual outcomes.JEL Classification : D22, D43, L11, L81

When Prohibiting Platform Parity Agreements Harms Consumers

“…Demand functions. In line with the empirical evidence (see, e.g., Cazaubiel et al, 2018) we assume that consumers perceive the products sold through the direct and the indirect channel as imperfect substitutes. Some consumers may in fact prefer to purchase through the indirect channel because intermediaries offer (un-modelled) additional services that M is unable or unwilling to supply in the direct channel.…”

“…Suppose, for simplicity, that intermediaries and platforms are in exclusive relationshipse.g., because of switching costs. 8 Final consumers can buy the monopolist's product either through the direct sale channel or through the intermediaries.…”

“…Moreover, consumers incur in a cost to join a platform and (like in Wang and White, 2016) the platform charges commissions to sellers as well as buyers. 8 We assume exclusivity in order to understand the role of platforms in multi-channel and multi-layer markets. In fact, in the opposite scenario where platforms compete to attract intermediaries and are homogeneous, they would make zero profits in equilibrium and play no role in the analysis.…”

Does direct connect benefit travellers?

“…A monopolistic travel supplier (airline) denoted by S distributes its product (content) both through a direct sales system, and indirectly through an intermediated channel where two platforms (denoted by P i , with i = A; B) are accessed by exclusive retailers (denoted by R i , with i = A; B) competing to attract …nal consumers (see, e.g., Bisceglia et al, 2019, Boik and Corts, 2016, Gaudin, 2019, and Johansen and Vergé, 2016, among others). 3 In contrast to the existing models, however, consider the possibility that, in addition to the direct distribution channel, the supplier may also grant direct access to its content to one of the retailers operating in the indirect channel: 'direct connect'. Suppose, without loss of generality, that R B always deals with P B in order to access S's content, while R A can either access the market by dealing directly with S or, alternatively, it operates through its own exclusive platform P A when S gives up direct connect (and allows that platform to market its content).…”

Much Ado About Nothing? Online Platform Price Parity Clauses and the EU Booking.com Case

“…Moreover, hotels charged the lowest price on the direct channel more often in Germany than in countries that did not abolish such clauses. Cazaubiel et al (2018) consider a dataset of proprietary booking level data for a hotel chain in Oslo. Exploiting the chain's decision to delist from Expedia, they estimate the entity of the substitution between OTAs and the direct channel.…”