The enforcement of the Digital Markets Act (DMA) began on March 7, 2024, targeting gatekeepers in the EU's digital markets. This blog highlights the initial impact of the DMA on Google's search results, which have adversely affected hotels and end consumers. The DMA's restrictions on self-preferencing aimed to benefit hotels and end consumers by prohibiting Google from displaying its services at the top of search results. However, they have led to unintended consequences. Before the DMA, Google's placement of its hotel comparison service provided valuable organic traffic to hotel websites. Post DMA, changes to the results page have reduced this traffic by 20%, while bookings through OTAs have surged by 36%, impacting hotel profit margins due to OTA commissions. Furthermore, end users now face difficulties locating hotels on Google Maps, comparing prices, and viewing booking options.
These outcomes demonstrate the complexities of ex-ante competition legislation and suggest that policymakers in countries like India and Brazil should carefully assess the potential repercussions before implementing similar laws, ensuring interventions are grounded in clear evidence of market failure.
Obligations under the Digital Markets Act (DMA), the European Union’s (EU) ex-ante competition law for digital markets, became enforceable against gatekeepers[1] on March 7, 2024. While we are still in the early days of the Act’s enforcement, developments during this period provide insights into the functioning of ex-ante sector-specific competition regimes. This blog discusses how changes made to Google search results after the DMA have adversely impacted hotels based on primary research by Mirai[2] and d-Edge Hospital Solutions[3]. It provides valuable insights for nations considering similar legislation for their domestic markets, such as India and Brazil.
Experts note that government intervention where none is required can cause market failure, resulting in adverse consequences for stakeholders.[4] The DMA’s restrictions on vertical integration and self-preferencing in online search to benefit hotels and end consumers illustrate this principle. Vertical integration occurs when a single firm creates products and services at multiple levels of the same supply chain.[5] For instance, Google’s search engine not only provides users with search results sourced from the web but also integrates other services, such as Google Maps and its flight and hotel comparison services.
When a vertically integrated company favors its own products and services relative to those provided by third parties on the same platform, it is known as self-preferencing.[6] In the context of online search, self-preferencing takes the form of preferential ranking, i.e., displaying the vertically integrated firm’s products and services higher on the search results page than third parties.[7] When users search for a hotel on Google, the top result is its hotel comparison service, which aggregates listings from various sources, including hotel and online travel agency (OTA) websites, and displays their location on Google Maps. Websites of OTAs[8], such as Booking.com or MakeMyTrip, and hotels are displayed lower on the results page.
Recital 51 of the DMA identifies preferential ranking and vertical integration of services on a gatekeeper’s core platform service[9] as problematic because such practices create conflicts of interest and foreclose competition from other service providers.[10] For instance, Google’s preferential ranking of its hotel comparison service ostensibly reduces the visibility of OTA and hotel websites, increasing their reliance on Google for visibility, traffic, and bookings.[11] The DMA seeks to prevent such allegedly anti-competitive conduct by prohibiting gatekeepers from preferentially treating their services vis a vis those of third parties on its core platform service, i.e., self-preferencing.[12] Theoretically, this would require Google to refrain from displaying its own products and services at the top of the search results page, providing more visibility to hotel and OTA websites.
Google’s Search Engine Results Page (SERP) before the DMA and in non-EU countries
Google’s SERP after the DMA in EU Nations
However, the self-preferencing prohibition does not account for the fact that preferential ranking does not by itself result in market failure and can benefit businesses and end consumers. Illustratively, Google’s placement of its hotel comparison service and Maps at the top of search screens was a source of organic traffic for hotel websites.[13] Organic traffic refers to visitors who find a website through unpaid search results rather than through paid advertisements. This type of traffic is important for hotels because it is cost-effective and often consists of highly interested potential customers.[14]
However, Google’s DMA-compliant results page shows its comparison service lower on the results page. Conversely, OTA websites are featured at the top due to their spending on Google Ads and search marketing (illustrated below). Resultantly, organic traffic to hotel websites dropped by 20% compared to pre-DMA levels[15], and bookings through intermediation services increased by 36%.[16] Notably, organic traffic dropped This means that hotels have little option but to increase their ad spending to compete with online intermediation services for higher rankings, which in turn increases their reliance on paid traffic vis a vis organic traffic generated through Google’s comparison service.[17] While OTAs help facilitate hotel bookings, they charge commissions ranging from 15-30% on each booking, which eats into a hotel’s profit margins.[18] Additionally, hoteliers allege that OTAs accumulate and control vast consumer data, bolstering their ability to offer personalized offerings to users at the expense of hotels.[19]
In addition, end users are negatively affected by the revamped search engine results page as they can no longer locate the hotels on Google Maps, compare price points on different dates and across hotels, and view different booking options for the same hotel/room.[20]
The above findings suggest that the DMA’s restrictions on preferential ranking by online search engines have yielded negative outcomes for businesses and end users, illustrating the complexities associated with ex-ante competition legislation. Policymakers in other nations should closely consider these outcomes and understand how similar interventions may play out in their domestic markets. In particular, they must ensure that any ex-ante interventions in digital markets are based on clear and unambiguous evidence of market failure.
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[1] Gatekeepers are digital platforms that provide an important gateway between businesses and users, resulting in a singificant impact on the European internal market.
[2] https://www.mirai.com/blog/dma-implementation-sinks-30-of-clicks-and-bookings-on-google-hotel-ads/
[3] https://www.d-edge.com/the-dma-is-changing-google-search-but-not-how-hoteliers-had-hoped/
[5] https://laweconcenter.org/spotlights/self-preferencing/#post-listing-
[6] https://kuscholarworks.ku.edu/bitstream/handle/1808/30526/2%20-%20MSF.pdf?sequence=1&isAllowed=y
[8] OTAs, such as Booking.com, Expedia, and MakeMyTrip, are platforms that aggregate hotel listings and facilitate bookings for consumers.
[9] The DMA defines core platform services as those integral to a digital business’ functioning and includes online search engines, operating systems, and web browsers etc.
[10] https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R1925
[11] https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4764658
[12] Article 6(5), Digital Markets Act.
[13] https://www.hospitalitynet.org/news/4122472.html
[14] https://reliqus.com/organic-search-drives-40-of-travel-and-hospitality-revenue/
[15] https://www.d-edge.com/the-dma-is-changing-google-search-but-not-how-hoteliers-had-hoped/
[16] https://www.mirai.com/blog/dma-implementation-sinks-30-of-clicks-and-bookings-on-google-hotel-ads/
[17] https://www.d-edge.com/the-dma-is-changing-google-search-but-not-how-hoteliers-had-hoped/
[18] https://www.mdpi.com/2071-1050/12/8/3355
[19] https://www.cci.gov.in/images/antitrustorder/en/odrer1666182873.pdf
[20] https://www.mirai.com/blog/dma-implementation-sinks-30-of-clicks-and-bookings-on-google-hotel-ads/