Price-Parity Clauses for Hotel Room Booking: Empirical Evidence from Regulatory Change

Abstract

This paper examines the impact of most-favored-nation (MFN) clauses on retail prices, taking advantage of two natural experiments that changed vertical contracting between hotels and major digital platforms. First, a broad EU intervention narrowed the breadth of obligations under price-parity clauses between hotels and major online travel agencies (OTAs). Second, France and Germany went further and eliminated all price-parity agreements for top OTAs. Using transaction data from hotel chains, we find that direct sales by hotels to customers became relatively cheaper than OTA sales for midlevel and luxury hotels. Comparisons with hotel pricing outside the European Union confirm the relative reduction in prices for midlevel and luxury hotels and an opposite pattern for budget hotels. Overall, regulating MFN clauses resulted in significantly cheaper direct-channel sales in two of three hotel types. Primary effects come from the narrow price-parity intervention and not from complete elimination of MFN clauses.