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UK CMA fines ComparetheMarket £17 million for breaching competition law through MFN clauses

  • United Kingdom
  • Competition, EU and Trade

26-11-2020

On 19 November 2020, the UK Competition and Markets Authority (“CMA”) fined consumer price comparison site ComparetheMarket over £17million for breaching competition law by imposing wide and restrictive most-favoured nation (“MFN”) clauses in its agreements with home insurance companies. These MFN clauses prohibited home insurers from offering lower prices to ComparetheMarket’s competitors, which the CMA found had the effect of restricting competition amongst both home insurers and price comparison websites.

Background

The CMA’s investigation into ComparetheMarket was formally opened in September 2017 as a direct result of the CMA’s wide-reaching market study into digital comparison tools (“DCTs”).

The CMA’s market study demonstrated that DCTs are generally beneficial for consumers and can actually increase competition. However, the CMA did identify potentially problematic behaviour as it found that wide MFN clauses, also called “price parity” clauses, were often incorporated into DCTs’ contracts with suppliers. These clauses prohibit a supplier from offering its products more cheaply on its own website or on any other DCT[1]. While MFN clauses are not per se prohibited due to their possible economic benefits (for example, preventing free riding), it is recognised that they have the potential to create market inefficiencies by reducing the ability of rivals to compete on prices.

During the market study, the CMA initially discovered MFN clauses within ComparetheMarket’s contracts that contractually obliged a supplier to ensure ComparetheMarket had the best deal and prohibited the supplier from offering lower prices to a rival DCT.

CMA Decision

The CMA concluded in its infringement decision that ComparetheMarket had a “network” of wide MFN clauses in its contracts with home insurers, which prevented ComparetheMarket from being undercut by prices quoted on competitor sites; if a home insurer was to offer a price reduction to a rival DCT, it was contractually bound to offer the equivalent deal to ComparetheMarket. ComparetheMarket also systematically monitored compliance, and even took steps to enforce the clauses against home insurers who had offered better deals to its competitors.

The network of MFN clauses had the following effects:

  • competition amongst home insurers was reduced as they could not quote different prices to the different DCTs;
  • ComparetheMarket no longer had to compete to offer lower prices from home insurers (e.g. by reducing its commission fees); and
  • rival DCTs could not obtain a price advantage, which allowed ComparetheMarket to reinforce its already strong market position and prevented its competitors from expanding their respective market shares.

Overall, the CMA found that ComparetheMarket’s anti-competitive behaviour caused homogenous pricing across DCTs, led to higher DCT commission fees and, ultimately, increased the prices consumers had to pay for home insurance.

Commentary

This was the CMA’s first fining decision in respect of wide MFN clauses although there have been several investigations into MFN clauses in recent years, and it comes at a time when vertical arrangements have been put under increased scrutiny by competition authorities.

In particular, the CMA issued its decision in the midst of the European Commission’s reform of the Vertical Block Exemption Regulation (“VBER”), which is due to expire in May 2022. The European Commission highlighted in its evaluation of the VBER that guidance on the compatibility of MFN clauses with the prohibition on anti-competitive agreements set out in Article 101 of the Treaty on the Functioning of the European Union is insufficient. During the consultation on the VBER’s future, stakeholders indicated that they were uncertain as to whether such MFN clauses benefit from the VBER and, as a result, the European Commission has suggested that it will introduce new provisions specifically on MFN clauses in the revised rules. A draft of these rules is expected in 2021, and businesses should carefully review existing contracts to ensure compliance.

However, businesses should also be aware that any revised rules adopted by the European Commission in 2022 will not automatically apply to the UK. While it is expected that the CMA will create a similar instrument to replace VBER, it is possible that the UK rules on MFN clauses will diverge from the European Commission’s approach, creating yet more uncertainty and complexity for pan-European businesses.


[1] Whereas a ‘narrow MFN’ prohibits a supplier from offering its products more cheaply on its own website, but allows the supplier to do so through other DCTs/sales channels.