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-The KFTC ordered five OTA platforms to remove and revise the clauses preventing hotels from offering better conditions on other sales channels-

In December 2019, the KFTC investigators visited 16 hotels located in Seoul and Jeju Island and examined the contracts with online travel agencies (OTA) they\'re in a trading relationship with. Through investigation, the KFTC found that online hotel booking platforms, including Interpark, Booking.com, Agoda, Expedia and Hotels.com have applied Most-Favored-Nation (MFN) clauses in contracts with local accommodation providers.

*Among the hotel booking platforms investigated, Hotelscombined, Hanatour and Ctrip did not enter into contract containing wide MFN clauses.

However, during the investigation process, these platforms voluntarily removed MFN clauses or replaced wide MFN with narrow MFN clauses.

◇ MFN clauses: MFN clauses entail that the accommodation provider has to give the OTA the same or better price as the price it offers to other competing OTA platforms. MFNs are divided into two categories: wide and narrow.

○ Wide MFNs: Wide MFNs prevent accommodation providers from offering rooms at more favorable conditions through any other sales channels, including other OTA platforms or hotels\' own website.

○ Narrow MFNs: Narrow MFNs allow accommodation providers to offer rooms at better conditions on other OTAs, but prohibit them from offering more favorable conditions on their own websites.

The previous MFN clauses prohibited accommodation providers from offering more favorable conditions (e.g., prices, number of rooms, and other conditions) on other OTAs or their own websites than the conditions offered on a given OTA. For instance, if a given hotel sells rooms at a rate of KRW 100 thousand on OTA “A”, the hotel is not allowed to offer rooms at less than KRW 100 thousand on other OTAs or its own website. (Price Parity Clause)

Due to these provisions, accommodation providers were forced to offer rooms at the same room price and conditions to consumers regardless of their sales channels. As a result, it was impossible for the accommodation providers to implement active promotion strategies such as providing lower prices for specific OTAs. For new OTAs, it was difficult to attract customers by providing rooms at lower prices than the competing OTAs.

The OTAs voluntarily deleted the MFN clauses or modified the wide MFN clauses to the narrow MFN clauses during the investigation process. Interpark deleted all forms of MFN clauses from the contract. Booking.com, Agoda, Expedia and Hotels.com have replaced their wide MFN clauses with the narrow ones. Considering accommodation providers\' free ride problem*, they were required to provide rooms to the OTAs on the same or more favorable terms than the hotel websites.

* If a hotel\'s own website provides rooms at a lower price than the OTAs, consumers will search for accommodation products in the OTAs and making room bookings on the hotel website. This may result in accommodation providers\' free ride.

Since the narrow MFN clauses only apply to a hotel\'s own website, consumers who make bookings by phone, in person, or via email* can make reservations at a lower price than through OTAs.

* When a consumer signs up for a hotel membership and make bookings at a price undisclosed via e-mail

The KFTC\'s measure is meaningful in that business operators voluntarily corrected the unfair terms on the hotel booking platforms, laying the foundation for restoring market competition. It is expected that the tangible effect of this measure will appear if COVID-19 starts to let up, and the tourism industry resumes.

*The Korean text of the documents is confirmed to be authentic and English version is only for reference

[Anti-Monopoly Division (Service), KFTC, March 16, 2021]