Search platforms: showrooming and price parity clauses

Abstract

We provide a model in which consumers search for firms directly or through platforms. Platforms lower search costs but charge firms for the transactions they facilitate. Platform fees raise the possibility of showrooming, in which consumers search on a platform but then switch and buy directly to take advantage of lower direct prices. In settings like this, search platforms like Booking.com have adopted price parity clauses, requiring firms to offer their best prices on the platform, arguing this is needed to prevent showrooming. However, despite allowing for showrooming in our model, we find that price parity clauses often harm consumers.

Much Ado About Nothing? Online Platform Price Parity Clauses and the EU Booking.com Case

“…Our findings seem to confirm that the information and managerial costs, that were likely hindering the short-run response of hotels, are not in operation in the medium run. All hotels, in fact, revised their strategies and, consistently with Johnson (2017) and Wang and Wright (2018), the prices on Booking.com significantly decreased on average. This effect is more pronounced (three times higher) for chain hotels.…”

“…Price Parity Clauses, a particular type of "Most Favored Nation" vertical restraints, are usually divided into two types (Wang and Wright, 2018). In the context of the lodging sector, a "wide" Price Parity Clause requires the price charged by hotels on OTAs cannot be reduced when selling via alternative channels, including direct selling (e.g., the hotel website).…”

“…Jean Tirole, in a recent interview, criticized these clauses, arguing that "if the platform is guaranteed the lowest price, there is no incentive for you to look anywhere else; you have become a "unique" customer, and so the platform can set large fees to the merchant to get access to you". 4 The growing attention to the economic effects of Price Parity Clauses has attracted a large body of recent theoretical research (Boik and Corts, 2016;Johnson, 2017;Johansen and Vergé, 2017;Edelman and Wright, 2015;Wang and Wright, 2018;Wals and Schinkel, 2018;Ronayne and Taylor, 2019, inter alios), which provides the underpinning of our empirical analysis. A common trait of this literature is that prices are expected to decrease, both in direct channels and on platforms, following the removal but also for their ancient culture, art, architecture, and for their cuisine, which is rooted in the traditional and distinct flavours and foods of the Mediterranean.…”

Qualitative investigation into consumer motivations and attitudes towards research shopping in the Georgian market

“…Moreover, there is a broader and more complicated role for companies in today's market in pricing their products and services. (Wang and Wright, 2015) suggest based on the sector in which the firm operates and the number of platforms it offers its products and services it can take two main approaches in pricing to counter show-rooming and web-rooming behaviour. Naturally, with so many online platforms such as Amazon or eBay as well as multi-channel and physical retailers, companies have virtually global platforms to sell their products.…”

Exploitative Abuse and Abuse of Economic Dependence: What Can We Learn From an Industrial Organization Approach?

“…These types of restrictions are known also as most-favored customer or best-price clauses (Ezrachi [2015]) and can be seen as aggravating the dependence of retailers upon platforms. Wang and Wright [2017] analyze these clauses by modeling a search platform including the possibility of "showrooming" , i.e. free riding behavior consisting of searching for a suitable good on the platform and then buying directly from the seller and avoiding the platform fee.…”