Whack-a-mole & Patchwork Quilt Regulation

There is a super interesting debate going on right now about regulating tech, brought up by Senator Warren. The best and most impartial analysis I’ve seen so far is from Ben Thompson at Stratechery:

https://stratechery.com/2019/where-warrens-wrong/

Followup here: https://stratechery.com/2019/where-warrens-wrong-follow-up-amazons-price-parity-provision-the-amazon-marketplace-question/

I agree with most of his analysis, and I won’t go into every point Senator Warren or Thompson makes, but I thought one part was super interesting and relevant to the travel & transportation industry I operate in.

“The Amazon Marketplace succeeds first and foremost because Amazon attracts a huge amount of consumer demand that merchants wish to serve; to that Amazon has added its fulfillment expertise, payments, basically the entire Amazon experience. The Marketplace should succeed or fail based on these characteristics.

The price parity requirement, though, leveraged Amazon’s control of demand — which merchants could not afford to ignore — to add an additional artificial constraint that meant those merchants could not use lower prices to compete with the Amazon Marketplace with their own websites or other e-commerce retailers. This is the exact sort of behavior that regulators should be focusing on.

Note that Amazon is hardly unique in using these provisions: online travel agents like Booking and Expedia enforce the exact same sort of provisions, and it has the exact same issues. Merchants (in this case hotels) feel they cannot afford to not be on OTAs given that that is where the demand is, and thus have no choice but to give up one of the best tools to compete with those OTAs (price).”

While I agree that this creates problems for suppliers, as an aggregator in the transportation/travel world (Mozio), I have an issue with this.

If they outlaw Most Favored Nation pricing, couldn’t I now just have to negotiate rates individually, and if something is not selling because people are checking prices on the other site and going there, couldn’t I de-prioritize them and work closer with those willing to play ball within my system?

His suggestion may be an improvement but at some point it may be playing whack a mole, OTAs and aggregators like Mozio will just find another way to pressure suppliers to give them the best price . . .

I’m far from some anti-regulation person, but pro-regulation efforts sometimes discount that stopping one type of behavior might just lead to another even less desirable behavior. I think more regulators need to be systems thinkers instead of being so one-dimensional.

If I’m Expedia, what is stopping me from saying that we will display you on the site and you don’t have to give us the same price, but if you do, you’ll get a “guaranteed best price” badge . . . and then we’ll prioritize those . . . at what point do you start telling me exactly how I have to sort results on my aggregator . . . is there going to be a law saying regulating my UI now?

The better thing to do might be to solve this problem at it’s core dynamic and decrease overall power of any one system . . . Booking and Expedia own everything in the travel industry, so they can pull this off, even against big guys like Marriott and IHG.

Mozio actually CAN’T pull that off because Uber and Lyft, the suppliers that aggregators normally push around, are much more powerful than us. That isn’t the case with Booking and Expedia. If they had been disallowed from acquiring half the industry in the first place then Marriot and other suppliers would have more power to not play ball, just like Uber and Lyft can do to Mozio.

My opinion is perhaps the only way to stop this kind of behavior is not to try to create laws that regulate very specific behaviors, behaviors that these players will just adapt and change in order to continue propagating the same dynamic, but to solve it at it’s source, which is one or two players have way too much power.

The only policy I can think of, and it probably has flaws of it’s own, is if you have above X amount of marketshare in a market you can’t acquire a competitor in that market. Literally 95% of the OTA world is owned by Booking or Expedia. I guarantee that if Booking and Expedia ever proposed a merger a gazillion anti-trust divisions would veto it, but frankly even a duopoly is pretty oppressive – maybe the solution to all of this is simply to set the trigger point at 20% instead of what it seems to be now, which is around 40-50%.

I acknowledge that there are perhaps negative side effects, the biggest one is most startup exits are acquisitions not IPOs, so if I had started an OTA and wanted an exit and the only way to do that was IPO, that could stop an untold number of OTAs from even starting in the first place, stifling innovation in itself  and further enshrining the OTAs positions. . . so I have mixed emotions.

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