Brexit may well be around the corner, but antitrust enforcement is still alive and well on the other side of the Channel. On November 2, 2018, the Competition and Markets Authority (CMA), the UK national competition authority, announced that it had provisionally found that ComparetheMarket, a home insurance price comparison site, may have infringed both UK and EU competition law by inserting wide most favored nation clauses (Wide MFN) in its contracts with home insurers.
This announcement comes on the heels of a CMA market study into digital comparison tools (or price comparison websites) (DCTs). The CMA study concluded on September 26, 2017, the same date that it opened its investigation against ComparetheMarket.
The study focused on the competitive effects of MFN clauses. These limit the price at which a supplier can offer its products through other sales channels. The CMA distinguished (as it has in the past in the context of its investigation into the private motor insurance market) between:
- ‘Narrow’ MFNs, which specify that a supplier must set a price on the DCT which is no higher than the price offered through its own website. ‘Narrow’ MFNs do not specify conditions for sales by the supplier through other channels; and
- ‘Wide’ MFNs, which require suppliers to set a price on the DCT that is no higher than the price offered through its own website or through any other sales channel.
In its DCT market study, the CMA conducted an econometric evaluation and also relied on its experience in the private motor insurance market regarding the effects of wide MFNs. These studies and findings were the basis for its conclusion that wide MFNs softened competition between DCTs and led to higher prices being charged to consumers. The CMA signaled that there were less restrictive means available, in particular narrow MFNs. In its study the CMA noted that narrow MFNs, for instance in the hotel online booking sector, had been banned in some European countries. However, the CMA concluded in its market study that:
“Reducing the risk of free-riding by suppliers on DCTs’ comparison services is a plausible efficiency justification for narrow MFNs, but the strength of this efficiency may be stronger in some sectors than in others, depending on how easy it is for consumers to obtain and compare quotes from multiple sites.”
As a result of this market study, the CMA announced the opening of an investigation into the practices of one DCT, ComparetheMarket.
The ComparetheMarket Case
Following its investigation into ComparetheMarket, the CMA has just issued a ‘statement of objections’ (SO) which sets out its provisional view that the contracts between ComparetheMarket and home insurers broke competition law.
Specifically, the CMA takes the view that the MFNs under examination may be anticompetitive because:
- The MFN clauses imposed on home insurers prevent rival DCTs from offering cheaper prices than ComparetheMarket; and
- Therefore, “home insurance companies are more likely to pay higher commission rates to comparison sites with the extra costs potentially being passed on to customers.”
The CMA notes that ComparetheMarket contacted home insurers in late 2017, indicating that it would no longer enforce the offending contractual provisions. However, the CMA expressed concerns about the prolonged negative effects of those clauses.
In sum, things do not look great for the price comparison service: although an SO is always said to be ‘provisional’, it is a significant procedural development and one that takes place after a substantial fact-finding exercise, including in this case an earlier market study. An SO indicates competition law concerns, and these are usually ones from which the addressee of the SO will find it difficult to escape. Therefore, unless there are significant developments in the evidence post-SO, the most likely outcome will be that a final decision is reached confirming the CMA’s provisional conclusion that an infringement of UK and EU competition law has occurred.
Over the past few years, MFNs have increasingly come under the scrutiny of antitrust authorities in the EU, in particular in the online space (E-books I, E-books II, Booking.com, and more recently in the Amazon case). But, to date, assessing the competitive effects of such clauses remains a difficult feat, for at least three reasons:
- First of all, the competitive effects of MFNs are often ambivalent and require a careful case-by-case analysis. By way of illustration, in the private insurance motor market investigation, the CMA found that narrow MFNs were a legitimate tool, and one that might be used to develop trust since, without narrow MFNs, consumers might use DCTs less. However, the CMA did not find such procompetitive effects with regards to wide MFNs and ordered their deletion. On this point, it would be interesting to see what arguments ComparetheMarket will put forward to defend the wide MFN clause.
- Second, national competition authorities (NCAs) across the EU appear to disagree on how certain MFNs should be analysed under EU competition law. This disagreement is best illustrated in the Booking.com saga, where the German Bundeskartellamt took a radically different approach to narrow MFNs than other NCAs by banning them entirely.
- Thirdly, to date, most investigations have resulted in the adoption of commitment decisions. These decisions are typically very short and therefore provide very little guidance. However, this case provides an opportunity to get deeper insights into the enforcers’ agenda and reasoning.
In sum, when it comes to MFNs, businesses operating in the EU lack legal certainty. Against this background, more guidance on the competitive assessment of MFNs is needed. As such, the Comparethemarket investigation and preceding studies is welcome, and is worth following closely.
For more information about MFNs and EU enforcement to date, please use the following links:
LexisNexis: Competitive Effects of Most-Favoured Nation Clauses (Subscription required).