Search platforms: showrooming and price parity clauses
We thank Greg Crawford, Germain Gaudin, Paul Heidhues, Bruno Jullien, Jose Luis Moraga, Massimo Motta, Alexei Parakhonyak, Martin Peitz, Patrick Rey, Andrew Rhodes, Fiona Scott-Morton, Yossi Spiegel, and Thibaud Verge as well as participants in talks at Australian Competition and Consumer Commission, 17th CEPR-Applied IO, CRESSE 2015, European Commission DG Comp, Hitotsubashi University, Hong Kong University of Science and Technology, IIOC 2016, Kyoto University, MaCCI Summer Institute 2015, Monash University, National University of Singapore, SAET 2015, Platform Strategy Research Symposium 2017, ESMT, Tinbergen Institute, Toulouse School of Economics, University of Tokyo, University of Zurich, UNSW Sydney, University of Technology Sydney, and ZEW Conference on ICT 2015 for helpful comments. We would also like to thank three anonymous referees and the Editor for their comments, which significantly improved the article. Wang gratefully acknowledges financial support from the German Research Foundation project PE 813/2-2. Wright gratefully acknowledges research funding from the Singapore Ministry of Education Academic Research Fund Tier 1 grant no. R122000215-112.
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.
