December 2, 2020

Case Brief: Rkg Hospitalities Pvt. Ltd. v Oravel Stays Pvt. Ltd.

Court: Competition Commission of India
Coram: Mr. Ashok Kr. Gupta, Mr. U.C. Nahta, Ms.nSangeeta Verma
Theme: A case on anti-competitive behaviour of OYO before the CCI
Subject: Competition Law
Judgement: India

FACTS

RKG hospitalities Pvt. Ltd. (informant) operated under the brand name ‘Divine Inn’ in Delhi had filed a complaint against Oravel Stays Pvt. Ltd. (other party) which operated under the brand name ‘OYO’. OYO provided budget accommodation to customers through online booking under the brand name ‘OYO rooms’. The informant had entered into an agreement with OYO to register its property on its website and use the brand value of OYO for running its business in the year 2017. Thereafter, OYO’s exponential growth in its business model had taken it to be a dominant player in the market. The informant was disadvantaged and blacklisted from OYO’s website in the succeeding year. Hence, the informant has filed a complaint under section 19 (1) (a) before the Competition Commission of India and alleged that OYO has disadvantaged the informant’s business due to its dominant position in the market which amounts to abuse of dominance; a concept that is strictly condemned by India.

ISSUES

The issues that had been the primary concern before the commission were the following:

a) What is the relevant market that OYO operated?

b) Whether OYO had a dominant position in the relevant market?

c) Whether there was an abuse of dominance by OYO?

ARGUMENTS BY THE PARTIES

Arguments by the Informant:

i) The informant has claimed that the relevant market in the instant case is ‘service for providing budget hotels for customers through online booking in India.’. The informant has further alleged that OYO was a dominant player in the market based on the data analytics presented by ‘Kalagato’, a data analytic start-up which provides business intelligence to investors and large enterprises.

ii) The informant has further drawn attention to the exponential growth of OYO’s business which has made it one of the most successful hotel chains in the line of Taj Hotels Resorts and Palaces. This clearly delineates the market size and share OYO enjoys and speaks volumes of its economic power to control the market to its own advantage prompting a clear path to eliminate other competitors.

iii) The informant has also termed the terms of the agreement entered into by the hotel partners to be unfair, one sided and discriminatory since OYO has been using its dominant position in the market to coerce its partners to enter into such agreements.

iv) The informant has also alleged OYO’s action to be of predatory pricing using its dominance in the market to eliminate its competitors out of the market. This clearly violates the statutory provisions mentioned under the competition act.

Arguments by OYO

i) OYO had questioned the jurisdiction of the commission since they claimed a person from the judicial background should be present in the quorum to make the order adjudicatory.

ii) OYO has further denied the definition of relevant market that has been provided by the informant. OYO follows a business model and provides hospitality services itself. It vehemently disagreed been in the same category of mere aggregators like Uber, Ola and Make My Trip. Therefore, OYO submitted that the market should not be divided into two components of online and offline and should be seen as one whole since online and offline are two perfectly substitutable ones.

iii) Further, OYO has strongly condemned the informant’s evidence of OYO being a dominant player in the market. The evidence lacked any methodology and did not have basis to proclaim OYO as a dominant player in the market. The evidence relied did not include Make My Trip which also had a considerable in the market. Therefore, OYO has a very nominal share in the market which is not enough to dominate the market into its own favor.

iv) OYO claimed that the terms of the agreement were not one sided or discriminatory. OYO had a brand value in the market and it is important for them to maintain such image to sustain the market. Hence, it has its own policies which are non-negotiable to sustain in the competitive market and maintain its brand value among its customers.

v) OYO has not shown any consequences of predatory pricing since the discount offers that are given by them are purely promotional and in no way, hampers the revenue sharing model of their business partners. The burden is borne by OYO.

JUDGEMENT BY THE COMMISSION

i) The Commission rejected the plea raised by OYO regarding the jurisdiction of the commission and the compulsion of a judicial member being included within the quorum of the commission. The commission had further referred to Section 15 of the Competition Act to justify its decision to reject the plea and had clarified that the said section clearly lays down that the jurisdiction cannot be questioned based on any defect or vacancy in the constitution of the commission.

ii) The commission had given primary importance to define the market in which OYO falls under before deciding whether there has been an abuse of OYO dominance in such market. The commission had kept three key elements while defining the relevant market. The three things being interchangeability, price and intended use. The commission was quick to appreciate the drastic change in the hospitality industries and shift of business online platform for budgeted hotels. As a result, there has been a surge in the number of aggregators in the market like MMT, Goibibo, Yatra.com, etc. However, with its highly valued brand name had a franchise model in place wherein it allowed the budgeted hotels to do business in the name of OYO while taking a royalty from them and assuring them a guaranteed price to them. Thus, the commission felt that the nature of OYO’s business should be taken into account and hence the market was defined as ‘Market for franchising services for budget hotels.’. Since, both the companies operated in India, therefore, the market was ‘Market for franchising services for budget hotels in India.’.

iii) The Commission has concluded that OYO cannot be unambiguously declared as a dominant player in the relevant market. This is because the relevant market is still in the nascent stage with new players entering the market every now and then due to the high potentiality in the market. Also, it is impossible to decipher whether OYO holds a high market share in the relevant market due to lack of data. Though, it is true that OYO commanded a high portion in the relevant market but market share alone is not a sole factor to determine the dominance in the market. The market structure is also important to be considered. Owing to such reasons, OYO does not have a dominant position in the market.

iv) Finally, the commission concluded that the terms of the agreement dictated by OYO to their partner hotels are not unfair or discriminatory in nature. Such provisions were introduced to preserve the brand value of OYO and maintain the good will to its large customer base. Thus, the commission does not see any wrong in having terms to preserve the goodwill of the company. Hence, OYO’s terms and conditions were appropriate and there was no abuse of its position in the market whatsoever.

CONCLUSION

The Commission has been extremely meticulous in dealing with this case of Competition law. As it stands in the recent times, Competition law is forming an important and growing brunch of law which has enacted for the Indian economy to bloom. The Act profess to promote an equal level playing field for all companies trying to enter the market. The act puts a check on the big powers to control the market in their own favor. However, I particularly do not agree with the commission in the instant case since the commission had differed from the informant’s definition of relevant market. As a matter of fact, the relevant market should have been ‘service for providing budget hotels through online booking in India.’. OYO, to this present day does play an important and dominant role in such market with other competitors like Treebo holding a negligible portion in the market. Hence, the commission erred in its order of defining a market which has allowed OYO come out of the case with clean hands.

Contributed by: Deep Narayan Sarkar (Student, OP Jindal Global University)

The views of the author are personal only. (if any)

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