On 19 November 2020, the UK Competition and Markets Authority ("CMA") announced that it had issued an infringement decision finding that the price comparison website ComparetheMarket infringed Chapter I prohibition of the Competition Act 1998 and Article 101 TFEU as a result of the use of wide most favoured nation ("MFN") clauses in contracts with home insurance providers. The CMA has imposed a penalty of GBP 17.9 million.
| what you need to know - key takeaways |
- The CMA found that the wide MFN clauses had the appreciable effect of preventing, restricting or distorting competition by: (a) reducing price competition between comparison websites; (b) restricting the ability of ComparetheMarket's rival price comparison websites to expand; and (c) reducing price competition between home insurers competing on price comparison websites.
- The CMA's findings follow a trend of interest by competition authorities across Europe and globally in MFN clauses, particularly in the e-commerce sector. Companies which operate or supply services via comparison tools or use MFNs in other ways should take note and review their contracts.
- The case also provides a recent example of the CMA launching an antitrust investigation following the conclusion of a wider market study
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Background
In September 2017, the CMA issued the final report of its market study into digital comparison tools (DCTs) which included finding that certain MFNs may in some circumstances have the potential to restrict competition. On the same day, the CMA opened its investigation into ComparetheMarket's use of MFNs and issued a Statement of Objections in the case in November 2018.
On 19 November 2020, the CMA announced that it had issued its infringement decision and imposed a fine on BGL (Holdings) Limited, BGL Group Limited, BISL Limited and Compare The Market Limited (together, "ComparetheMarket").
The CMA's findings
The CMA found that ComparetheMarket had infringed competition law between 1 December 2015 and 1 December 2017 by using wide MFN clauses in its contracts with a number of home insurance providers selling through its price comparison website. 'Wide' MFNs impose restrictions on the offer of better terms on a provider’s direct sales channels (in this case, the insurer’s own website) as well as rival comparison websites. These can be distinguished from 'narrow' MFNs, which restrict the offer of better terms on direct sales channels only and are considered less problematic.
The network of wide MFNs meant that ComparetheMarket was protected, as a matter of contract, from being undercut by the prices quoted by the relevant insurers on competing price comparison websites.
The CMA considered that the relevant insurers covered by these MFN clauses with ComparetheMarket accounted for approximately 40% of sales made through price comparison websites during the relevant period, and ComparetheMarket itself had a market share of over 50% at the time. As such, there was a significant proportion of consumers who could only be accessed by insurers through listing their offers on ComparetheMarket.
The CMA also noted that internal documents had shown how significant the MFN clauses were to ComparetheMarket's competitive strategy. Further, ComparetheMarket placed a clear emphasis on compliance with its wide MFN clauses, and systematically monitored and enforced them. Accordingly, most insurers complied with the MFNs.
In particular, the CMA found that the use of MFNs across is network of agreement had had the following effects:
- the relevant insurers were contractually unable to quote lower prices on comparison websites than what they quoted on ComparetheMarket, reducing their incentive to lower prices generally;
- competing price comparison websites were prevented from gaining a competitive price advantage over ComparetheMarket;
- ComparetheMarket was able to ensure it had the lowest prices from insurers by relying primarily on its wide MFNs, rather than competing with other price comparison websites e.g. by reducing commission fees;
- competing price comparison websites were restricted in their ability to expand, allowing ComparetheMarket to maintain or strengthen its market power; and
- because the relevant insurers competed less strongly on price, other providers were subject to less competitive pressure, such that competition on retail prices between all insurers competing on price comparison websites was reduced.
Ultimately, the CMA found that the effects of ComparetheMarket's network of wide MFN clauses resulted in less differential pricing across price comparison websites for home insurance, to the detriment of consumers using such sites to purchase their home insurance. The penalty of GBP 17.9 million that was imposed reflected the seriousness of this infringement.
Comment
The CMA's findings follow a trend of interest by competition authorities across Europe and globally in MFN clauses, particularly in the e-commerce sector. The CMA noted in its press release that comparison websites have huge consumer benefits (including greater choice and ability to obtain bargains), which is why a restriction of competition in this area was particularly detrimental for consumers. The case also provides a recent example of the CMA launching an antitrust investigation following the conclusion of a wider market study.
With thanks to Helen Chamberlain of Ashurst for her contribution.
