The German Bundeskartellamt terminated its proceedings regarding price parity clauses against Lieferando, one of Germany’s leading food delivery platforms. Since the Bundeskartellamt has been rather critical of price parity clauses in the past, the termination might have come as quite a surprise. This post takes a look at the reasons for terminating the proceedings and explores whether the use of such clauses will become easier in the future.
Price parity clauses in a nutshell
Online platforms, such as online travel agencies or food delivery services, often use price parity clauses in their contracts to ensure that sellers active on their platform do not offer their goods/services at more favorable terms on other platforms or distribution channels. In simple terms, it prevents businesses from offering better terms somewhere else.
Proponents of price parity clauses argue that these provisions help maintain a level playing field and prevent free-riding by platform users, such as hotels and restaurants (i.e. using the platform to search for a nice hotel and then booking it for a better price on the hotel’s own website). However, critics of parity clauses raise several concerns about their potential negative impact on competition. When sellers using a platform are bound by parity clauses, their ability to offer lower prices on another platform to attract more customers might be restricted, potentially leading to higher prices for consumers. Smaller or emerging platforms might also find it difficult to attract sellers due to the restrictions imposed by parity clauses, thus stifling competition and innovation.
Not a new topic
Various competition authorities in Europe dealt with price parity clauses in the past, including the Bundeskartellamt. In 2013, the Bundeskartellamt opened an investigation into Booking.com because Booking.com required the hotels listed on their website not to offer rooms on terms more favorable than on Booking.com on all other online and offline distribution channels (wide price parity clause). Booking.com reacted by allowing hotels to offer better terms and prices on other online and offline sales channels, while keeping the obligation not to offer lower prices on their own website (narrow price parity clause).
However, the Bundeskartellamt eventually found that the narrow price parity clause also restricted competition. This decision was appealed by Booking.com, and the Higher Regional Court of Dusseldorf found that the narrow price parity clause was ancillary to the agreements between Booking.com and the hotels, particularly because it prevented free-riding by the hotels. This decision was overturned by the German Supreme Court, which criticized the approach of the Higher Regional Court, stating that a parity clause could not be ancillary to the main contract. The court argued that such an agreement could only be assessed under Art. 101 (3) TFEU, but was not indispensable in this case, as evidenced by the fact that Booking.com had been able to further strengthen its market position in Germany, even though it had no longer used the narrow best price clauses since February 2016.
As we have previously reported on this blog, the European Commission’s Vertical Block Exemption Regulation (VBER) also includes guidance regarding price parity clauses. While wide price parity clauses are not exempted under the VBER, narrow parity obligations are generally exempted if the prerequisites of the VBER are met.
The recent decision by the Bundeskartellamt
On 12 July 2023, the Bundeskartellamt decided, for discretionary reasons, to terminate its proceedings against Yourdelivery, which operates the Lieferando food platform. The investigation had focused on contracts between Lieferando and restaurants offering their food on Lieferando, which provided for a price parity clause according to which the prices charged through the restaurant’s own distribution channels must correspond with the prices on the Lieferando platform.
The Bundeskartellamt is still of the opinion that such clauses can cause significant harm to competition. However, unlike in the Booking.com case, the market conditions in the food delivery services industry are different. The Bundeskartellamt found that the “conditions in the food delivery market currently differ from the conditions for hotel booking platforms in the Booking.com case: The market and the business models for ordering meals are currently very much in motion. According to our current investigations, restaurants are increasingly using alternative services which newly enter the market, and sometimes they are using several delivery services in parallel. Overall, we do not have sufficient indications at this point to suggest that the clause represents a serious barrier to market entry by new platforms offering differentiated services.”
So, will the Bundeskartellamt be fine with narrow price parity clauses in the future?
To this, I must unfortunately reply with a lawyer’s all-time favourite: It depends. The Lieferando case shows that the Bundeskartellamt will carefully assess the implications of a given clause, taking into consideration the markets concerned, including market dynamics, factors driving competition, and consumer demand behaviour. In particular, in concentrated markets, price parity clauses will be scrutinized by the Bundeskartellamt (and other competition authorities).
In my view, it is not surprising that after the Covid-pandemic, by which restaurants in particular were intensively affected, the food delivery market is still considerably in motion. Furthermore, the evolving nature of the digital economy may influence the Bundeskartellamt’s stance on price parity clauses in the future. As technology and consumer preferences continue to evolve, new business models and distribution channels may emerge, impacting the relevance and effects of such clauses. Given that narrow parity obligations are generally exempted if the prerequisites of the VBER are met, the Bundeskartellamt (and other European competition authorities) will need to take this into account in cases which may affect trade between Member States.
Photo by Rowan Freeman on Unsplash
Antitrustpolitics.com 