CMA publishes preliminary findings of digital comparison tools study

On 28 March 2017, the UK Competition and Markets Authority (CMA) published its preliminary findings of its digital comparison tools (DCT) market study. The market study was launched in September 2016 to understand how consumers benefited from DCTs and how DCTs compete with each other and enable competition between suppliers.

The preliminary findings focus on the CMA’s analysis of three industries where DCTs are used by consumers: travel, utilities and financial services. The CMA considers DCTs to be “web-based, app-based or other digital intermediary services used by consumers to compare and/or switch between a range of products or services from a range of businesses”. This covers a broad range of tools, ranging from price comparison websites for insurance to online travel agents. The CMA notes that that, in order to remedy some of the issues it has identified, it could:

• take enforcement action.
• make recommendations to regulators and/or government.
• engage with firms in the sector.
• suggest new regulation in order to address the issues it has identified with DCTs currently DCTs are only regulated if the industry they cover chooses to regulate DCTs. 

The CMA is inviting stakeholders to provide views on the need for enforcement action and/or regulation (amongst other things) and if so, what form this might take.

Relationships with consumers

The CMA’s findings were largely positive in relation to consumers. It found that DCTs decreased a consumer’s search, switching and transaction costs, by offering consumers the ability to compare the offerings of different suppliers and filter them based on individual consumer preferences. These costs are also decreased by the variety of functionalities between different DCTs, eg some DCTs offer the option to purchase the service directly (such as online travel agents), rather than having to visit the supplier’s website, which the CMA considered improved the overall consumer purchasing journey.

Consumer engagement with DCTs is generally high - 85% of those internet users surveyed by the CMA had made use of a DCT. However, the CMA noted that a large proportion of consumers are still missing out on the benefits of using DCTs. Factors affecting consumer engagement included:

• product type - For instance, consumers were more likely to engage with DCTs for “exciting” products e.g. travel related purchases, when compared with choosing energy suppliers.
• complexity of product - Consumers were also often not able to understand information about complex products.
• triggers to switch - The CMA found consumers often did not have any triggers to switch (such as renewal).
• trust - Consumers trust DCTs to provide them with an accurate overview of the market (even if the DCT does not have access to the data of every market supplier), and the CMA found that these high levels of trust lead to greater engagement. However, despite the level of consumer trust in the DCT’s product offering, the CMA found that consumers did not trust DCTs to use their personal data appropriately and had a low awareness of how to complain about the behaviour of a DCT.

The CMA believes DCTs could do a great deal to lower many of these barriers to consumer engagement and, as a result, it is seeking evidence and input on how consumers engage with DCTs as part of its consultation and ways to improve consumer trust in DCTs. It plans to also look at how consumer data is used by DCTs and ways in which to raise consumer awareness about how consumers can take action against DCTs, if they feel the need to.

Relationships with suppliers

For the most part, the CMA considers that DCTs have benefited suppliers, as well as consumers. It found evidence that DCTs could reduce supplier costs (eg advertising) and facilitate the entry of new players into the market (particularly smaller ones), which was ultimately beneficial for consumers too.

However, the CMA was concerned about the commercial power that suppliers hold and the ability they have to withhold data, amongst other things. For instance, the CMA found issues surrounding the provision of price information by suppliers to DCTs (particularly for insurance and flights); credit card eligibility; and broadband speed information. Without supplier data, DCTs cannot provide consumers with comparative offers from different suppliers and this weakens a DCT’s effectiveness as a comparison tool. As this issue is so crucial to the effective functioning of DCTs, it forms a key part of the CMA’s ongoing consultation and the CMA is considering a range of remedies.

Competition between DCTs

As well as input access, the CMA highlighted other competition issues arising from the DCT-supplier relationship:

• the existence of narrow “most favoured nation” (MFN) clauses within an agreement between a DCT and a supplier, so that the supplier is required to set a price on a DCT which is no higher than the price offered through its own site (although other sales channels are not covered).
• the existence of wide MFN clauses within an agreement between a DCT and a supplier. A ‘‘wide’’ MFN typically specifies that a product/service cannot be sold more cheaply on a supplier’s website or on any other DCT.
• key word bidding restrictions in agreements, so that DCTs and suppliers agree to not bid on each other’s brand names and/or relevant key words for search engine results.
• non-resolicitation agreements between a DCT and a supplier which specify that a DCT may not contact a consumer who has purchased a supplier’s product from that DCT for a specified period. The CMA found these appeared mostly in the home insurance sector.
• whether DCTs lead to “hollowing out”, where consumers focus on one product feature (usually price) to the exclusion of other factors, which reduces suppliers’ incentives to invest in those other factors (eg quality).

Next steps

The CMA has already stated it will not refer the DCT market for a more in-depth market investigation (under a Market Investigation Reference). The CMA considers that it has all the tools it needs to address the problems it has identified, without a market investigation.

The CMA’s preliminary findings list a number of issues that the CMA would like to consider in further detail and take measures to address. The CMA is now consulting on the issues it has raised, including:

• the issues that may limit competition between DCTs (as listed above).
• restrictions on inputs to DCTs which affect the ability of DCTs to operate effectively.
• a lack of consumer engagement.
• need for enforcement action and/or cross-sector regulation.
• the future of DCTs.

The CMA’s detailed questions can be found in Chapter 11 of its preliminary findings report. The CMA is taking comments and views on its preliminary findings report until 17:00 on 24 April 2017 and expects to publish its final report (including the action it intends to take) on or before 28 September 2017.