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

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 E.U. intervention narrowed the breadth of “price parity clause” obligations between hotels and major Online Travel Agencies (OTAs). Using a unique dataset of transactions from different hotel chains, we find direct sales by hotels to customers became relatively cheaper than OTA sales for mid-level and luxury hotels. Comparisons with hotel pricing outside the E.U. confirm the relative reduction in prices for mid-level and luxury hotels, while finding an opposite pattern for budget hotels. Second, France and Germany went further and eliminated all price-parity agreements for top OTAs. This stronger intervention, weaker in impact, was associated with cheaper sales on the direct channel in some segments. Overall, regulating MFNs resulted in significantly cheaper direct channel sales in two out of three hotel segments. Primary effects come from the narrow price-parity intervention and not from complete elimination of MFNs.