In late 2020, the CMA issued the first substantial fine to an insurance price comparison website for price parity clauses, heralding a potential step-change in risk for digital platforms. The CMA’s unprecedented fine of almost £18 million (which has recently come under appeal) arrives at a time when the EU and the UK are reviewing rules that currently exempt many price parity clauses from competition scrutiny. These reforms, which are aimed at making the rules “fit for a digital age”, may include removing the safe-harbour that keeps price parity clauses used by smaller platforms (with market shares under 30%) out of antitrust’s reach and are bringing these practices into the spotlight.
Too much choice can be problematic
The digital revolution has drastically enhanced the choices available to consumers – from holidays, to energy suppliers, to fashion – at the click of a button we have access to more options than ever before. But greater choice brings its own problem: as anyone who has spent an hour comparing materially identical options for mundane household purchases online knows all too well, search costs can quickly mount.
The “best price guarantee” solution
To solve this problem, aggregators and platforms have popped up, offering customers the ability to compare deals and book or buy direct. Many offer a “best price guarantee” – so not only does the consumer know they’ve surveyed their choices, but also that they are getting the best deal possible. So far, so good for consumers – or so you might think...
In fact, best price guarantees – or more accurately, the price parity clauses that enable platforms to offer them (also known as “most favoured nation” or MFN clauses) – have been at the centre of a debate amongst antitrust enforcers over the past decade. Views on when and why such clauses could raise competition concerns have differed and led to significant uncertainty for businesses.
While price parity clauses have been under antitrust scrutiny, penalties to date have been nominal (if imposed at all). A long-running saga over a dozen antitrust cases against various online travel agents resulted in only a handful of actual infringement findings – and no significant fines (most cases were closed with commitments).
Price parity clauses are the antitrust priority
Where the reforms proposed in the UK and the EU will land, and whether other competition authorities will follow the CMA’s lead in imposing significant fines, is yet to be seen. But price parity clauses will undoubtedly remain a priority for competition regulators in the years to come.
Read more in our Competition blog.
Scrutiny of price parity clauses in digital markets will likely remain a priority for competition regulators in the years to come – in Europe and the UK. The CMA’s recent fine shows that the stakes are getting higher.