CCI’s Interim Relief in the OYO-MMT Order: Competition in Digital Markets for Hotels

Posted on August 9, 2021

Authored by Vallari Dronamraju*

Image Source: India TV

Digital Markets and the Hotel Industry

The digital market in India has been growing by leaps and bounds, specifically in the hotel industry. OYO[1] offered an important breakthrough to the traditional way of booking and has facilitated budget accommodation. Online travel agents[2] like MakeMyTrip India Pvt. Ltd. (“MMT”) and Ibibo Group Pvt. Ltd. (“Go-Ibibo”) have become an important access route to consumers, having put into place a framework that promotes transparency and platform-to-business contracts. After the merger (“MMT-Go”) between the two, there was a significant expansion in business for the growing travel industry in India, which was further accentuated by an increase in demand throughout the COVID-19 pandemic.

In March 2021 (“2021 Order”), the Competition Commission of India (“CCI”) took a stern step in the regulation of the activities of MMT and OYO in FHRAI, FabHotels & Rubtub Solutions v. MMT, Go-Ibibo & OYO. OYO and MMT-Go had entered into a confidential commercial agreement (“Agreement”), which allegedly led to the denial of market access and discrimination between similarly placed players. As contended by the informant-hotels, in this Agreement MMT had agreed to give preferential treatment to OYO and its hotels on its platform and de-list every other hotel, causing detrimental effects to the informant-hotels’ business along with denial of market access. In light of the above order given by the CCI, this article will explore the implications of a vertical agreement between a budget hotel and an online hotel booking service and its impact on the relevant digital market.

Tracing the trajectory: Background into the CCI’s order

Case No. 14 of 2019

The ordeal of the MMT-OYO Agreement and its anti-competitive nature began in 2019, where the CCI, in its order dated 28 October 2019, CCI found that thezre exists a prima facie case for investigation under Section 4 of the Act against MMT-Go and OYO in favour of Federation of Hotel & Restaurant Associations of India (“FHRAI”). The CCI observed that the combination of MMT-Go led to dominance in the relevant market of OTAs, which empowered it to operate independently of the competitive forces prevailing.

Case No. 01 of 2020

In a separate case involving similar facts and issues, Rubtub Solutions Pvt. Ltd. (“Treebo”) (involved in the business of providing franchising services to budget hotels in India) had alleged that MMT has abused its dominant position Treebo claimed that, in 2016, MMT proposed to make a significant investment in Treebo if Treebo agreed to list its hotels exclusively on MMT’s platform. If Treebo did not accept MMT’s proposal, it was allegedly threatened to be removed from MMT’s platform.

It was also contended that eventually MMT agreed to list Treebo back on MMT platform subject to Treebo entering into ‘Exclusivity Agreement’ and ‘Chain Agreement’ with MMT. However, despite Treebo’s acceptance of these terms, MMT allegedly unilaterally terminated these agreements due to OYO’s agreement with MMT where MMT agreed to remove OYO’s competitors like Treebo from its platform. In this case, CCI found a prima facie case of contravention of Sections 3 and 4 of the Act. Given the similarity of issues, the CCI decided to club this matter along with Case No. 14 of 2019.

The Interim Order by the CCI in 2021

The CCI, in the 2021 Order, considered the petitions of FHRAI, FabHotels, and Treebo in the aforementioned cases against MMT, Go-Ibibo, and OYO alleging that delisting of their hotels from the defendant’s portals had caused an adverse effect on their growth. The informant-hotels prayed for an interim relief of being relisted on the portals of the defendants.

Interim relief awarded

In this order, the CCI referred to the precedent set out in the SAIL judgement with respect to the three conditions for grant of interim relief. Under the first condition or the assessment of a ‘prima facie’ case, the CCI opined that there was nothing to suggest that MMT-Go did not enjoy the dominance in the relevant market and that the facts in the present case were more compelling than the prima facie stage. The conviction of the CCI was strengthened by the recent global shift in the distribution architecture including India, with digital distribution channels growing at an unprecedented pace.

The second condition (i.e., the balance of convenience assessment) is comparative in nature and the CCI must compare the inconvenience caused to the applicant if the interim relief is refused and the inconvenience caused to the opposite party, if the relief is granted. While examining this condition, the CCI was of the opinion that MMT-Go will not be put to much inconvenience even if they have to provide access to these players on its online portals.

Under the third element of the SAIL judgement, the CCI must be satisfied that the party would suffer irreparable and irretrievable damage, or if there is a definite apprehension that it would have an adverse effect on competition in the market. In this order, the CCI observed that the denial to market access to the informant-hotels was lethal to the functioning of their businesses. In the interest of free market and trade, the Commission exercised its discretion and allowed interim relief, and directed MMT-Go to allow the applicants to be listed on its online portals. The interim relief, under Section 33, was thus awarded to prevent any potential harm that could occur due to the alleged conduct.

“The Commission is thus, convinced that the conduct of MMT-Go in delisting and continuing to delist franchisee service providers, specifically FabHotels and Treebo, as well as the budget hotels which were availing some logistic support from them, has affected competition in the market by denying access to an important channel of distribution through foreclosure. It is in the interest of free market and trade that injunctive orders are called for in this matter and the Commission finds it a fit case to exercise its discretion to allow interim relief in the matter, till further orders. The Commission notes that FabHotels and Treebo have primarily prayed for a relisting on the MMT-Go portals for attaining visibility. Accordingly, MMT-Go is directed to allow FabHotels and Treebo to be listed on its online portals.”

- Paragraph 117 of the 2021 Order

The Abuse of Dominance and Anti-Competitive Effects through the Agreement

The appreciable adverse effects on competition (“AAEC”) of the exclusive Agreement under Section 19(3) of the Act, include the creation of barriers for new entrants into the market or driving out existing competitors. In the 2021 Order, the CCI reiterated the prima facie findings in the Case No. 14 of 2019 and Case No. 01 of 2020, especially given the admitted existence of MMT’s contractual commitment with OYO.

The CCI in this order, also observed that MMT-Go held a dominant position, under Section 4 of the Act, in the online hotel booking market. Noting the reports published at the end of 2017, the CCI observed that OYO and MMT-Go announced a tie-up through a joint press statement that indicated a shift from an aggregation model to a franchise model, reducing operational costs and improving serviceability. Further, if FabHotels and Treebo were not viewed as competitors by OYO, there would have been no reason why OYO would ask MMT-Go to agree to such a condition. Further, establishing a denial of access indicates an anti-competitive effect/distortion in the market in which the denial has taken place, leading to a dominant position in the market.

To judge the extent of the abuse of dominance by an enterprise, it is also essential to look into the share of the relevant market and the possible existence strategy aiming to exclude competitors that are as efficient as the dominant entity. It includes the market for travel and related services and booking of hotels/accommodations, which for MMT-Go includes all alternatives available with such hotels/franchising service providers and the competitive constraints.

Further, the CCI was convinced that denial of access to dominant online intermediation, complete or absolute, can be lethal to the functioning of businesses that rely on these high-value intermediaries to reach the end-consumers. The CCI acknowledged that it “cannot be oblivious to the fact that an exclusivity arrangement between a dominant player and another player with a significant market power in the vertical chain can possibly allow such players to bolster their respective strengths which may not augur well for the market or other market participants”[3].The existence of such an anti-competitive practice was inferred from coincidences, which taken together, in the absence of a plausible explanation, led to the Agreement causing AAEC effect on competition in the market in the prima facie view of the CCI.

In furtherance of this, the CCI directed interim relief in the 2021 Order, which was reaffirmed in June 2021, when the CCI directed MMT to relist the properties of Treebo and FabHotels on its portals, in the next month.

Future Implications of the Order on the Digital Market

The explosion of online commerce has changed the dynamics of consumer preferences and transactions. Large online platforms may control online distribution through strong network effects in the digital environment, and their ability to access and accumulate large amounts of data. OYO has held a significant market share in India and continues to hold a large share across the globe. In the US, it has been taking the market by a storm by entering 2021 with new hotels in Colorado, Georgia, Iowa, Mississippi, North Carolina, and Texas. Therefore, as a market regulator, it is imperative for the CCI to ensure that all stakeholders get an opportunity to compete on merits and get a fair chance to be part of digital commerce.

The Agreement between MMT-Go with OYO was not in the interest of fair competition and it resulted in significant losses to other aggregators including FabHotels and Treebo. Continuation of such an exclusionary agreement could change the competition landscape tipping the markets in favour of MMT-Go and OYO, causing irreparable harm to market practices. The pandemic had also weakened the applicant's position as credible competitors in the market.

Digital markets are susceptible to misuse and exploitation now more than ever, and it is imperative that the regulators keep a check on the effects these can have in a dynamic economy like India, in accordance with competition policy objectives.

*Vallari Dronamraju is an Editor at IntellecTech Law and a final year law student at the National University of Advanced Legal Studies, Kochi with a keen interest in competition law, technology law and corporate law.

[1] Oravel Stays Private Limited (“OYO”) is the largest hospitality company in India, and a dominant player in the market for franchising services in the digital market for budget hotels. It has grown into one of India’s most valuable private companies in the last decade, with a presence in more than 800 cities, with more than 23,000 hotels, worldwide. [2] An OTA is a travel website that specialises in assisting in online search, comparison and booking of travel products that include accommodation services. [3] Paragraph 102 of the CCI Order