CMA has launched market study into digital comparison tools
20 October 2016
On 29 September 2016, the CMA announced the launch of a market study into ‘Digital Comparison Tools’. The study will cover price comparison websites, smartphone apps and any other digital intermediary services which UK consumers can use to compare products between providers.
Hotel online booking is one of twelve sectors on which the CMA’s study will focus. The study will last for up to a year, and there are a wide range of possible outcomes. Hotel online booking has of course been the subject of much scrutiny by international competition authorities, with the major online travel agents changing their practices and giving commitments to certain competition authorities in order to have enforcement proceedings against them dropped. The CMA itself dropped its enforcement proceedings into online travel agents on administrative grounds. This market study isn’t reopening the CMA’s enforcement proceedings, but is looking at much broader competition and consumer issues.
Digital Comparison Tools (DCTs) have played an increasingly important role over the last 15 years. The CMA’s own market investigations “have highlighted how these tools can play a powerful role in increasing competition and helping consumers to find better deals and switch.”
However, according to CMA Acting Chief Executive Andrea Coscelli, DCTs have been more successful in some sectors than others. Additionally, concerns have been raised relating to how DCTs compete and with consumer trust, in particular, transparency and the manner in which deals are displayed and compared. The purpose of the market study is to consider how to maximise the potential benefits of DCTs for consumers, and reduce any barriers to how they work.
The market study will address four key themes:
- What consumers expect from DCTs, how they use them and their experiences;
- The impact of DCTs on competition between suppliers listed on them;
- How effectively DCTs compete with each other; and
- The effectiveness of existing regulatory approaches to DCTs.
The CMA has invited comments by 24 October 2016.
The markets regime under the Enterprise Act
The CMA has wide powers under the markets regime; it does not need to find an infringement of competition or consumer laws in order to take action.
In this ‘phase 1’ market study, the CMA can consider both competition and consumer issues. Outcomes of the market study could include:
- A clean bill of health;
- Recommendations to Government, e.g. if the CMA considers legislation is needed;
- Encouraging businesses to self-regulate;
- A market investigation reference to a ‘phase 2’ market investigation;
- Accepting undertakings from firms in lieu of a market investigation reference;
- Competition or consumer enforcement action in relation to suspected infringements.
The CMA must complete the market study within a year (28 September 2017). It will issue an interim report within 6 months (28 March 2017) in which it will confirm whether it is minded to make a market investigation reference and will consult on this.
Should the CMA make a phase 2 market investigation reference, it would (usually) be limited to considering competition issues rather than consumer or broader public interest issues. Under new powers introduced in 2014, but which are yet to be used, the CMA does have the ability to look at ‘cross-market issues’ affecting multiple sectors.
In a market investigation, the CMA has extensive information gathering powers backed by the ability to issue significant fines for failure to comply. The CMA also has a very large toolbox of remedies ranging from informational/transparency remedies to price controls to structural remedies such as the break up of large and/or vertically integrated businesses.
DCTs have been the subject of much attention from competition and consumer regulators including the CMA.
Many of the CMA’s market investigations have identified the positive role DCTs can play in driving competition and consumer engagement, and some have gone even further, creating DCTs as a remedy to address market features found by the CMA to have an adverse effect on competition.
However, in some sectors DCTs have faced criticism. For example, online travel agents have faced competition proceedings across multiple European jurisdictions, and the use of so-called ‘wide MFN’ (most favoured nation or price parity) clauses has been challenged both in the travel sector and in private motor insurance. The CMA is also currently investigating suspected competition law infringements by price comparison websites offering energy tariffs, a case that was recently transferred to the CMA from Ofgem.
Here, the CMA has the opportunity to consider how to maximise and leverage the positive benefits delivered by DCTs, whilst addressing the competition and consumer concerns. This is a considerable task. The twelve sectors chosen by the CMA are diverse, as are the DCTs that operate within these sectors. The CMA will no doubt draw on its previous investigations into 8 of these sectors, but the fact that the CMA has already looked at these sectors – the private motor insurance remedies were finalised last year and the finer detail of the energy and retail banking remedies is still being determined – could create its own challenges. There are also potential tensions between competition and consumer protection, as seen when the CMA reversed the Ofgem confidence code requirement for PCWs to show the ‘whole of market’, that the CMA will need to seek to resolve.
A positive outcome in the CMA’s first cross-sector market study – whatever that might look like – could pave the way for future cross-sector reviews of cross-cutting issues.