The competition watchdog, the CMA, fined Comparethemarket.com (home of those TV meerkats) £17.9 million last week.
What heinous offence had Sergei and his cuddly friends committed to warrant such a hefty financial punishment? Don’t those friendly meerkats simply compare prices for us?
Well no, so-called ‘price comparison’ sites are not simply passive aids to finding the best price across the market. They are misnamed as they are actually active players in their marketplaces, taking a cut of every transaction and directing people to suppliers which pay them commission.
In this case, the CMA found that between December 2015 and December 2017 those cunning meerkats had been imposing ‘rate parity’ clauses on the suppliers they listed, preventing those suppliers from offering a lower price on other, rival ‘price comparison’ sites.
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This “breached competition law…[and] as a result, competition between price comparison websites, and between home insurers selling through these platforms was restricted. The CMA found that this is likely to have resulted in higher insurance premiums”.
How did these mysterious-sounding rate parity clauses (or ‘wide MFNs’, ‘most-favoured nation clauses’, in the competition jargon) put up the prices that you and I pay for our home insurance, when we thought we were just finding the cheapest rates available?
The CMA says the rate parity clauses “prohibited the home insurers from offering lower prices on other comparison websites and protected ComparetheMarket from being undercut elsewhere.
“They also made it harder for ComparetheMarket’s rivals to expand and challenge the company’s already strong market position as other price comparison websites were restricted from beating it on price… Rival comparison sites were restricted in gaining a price advantage over ComparetheMarket, for example, by lowering their commission fees to encourage those insurers to quote lower prices on their platforms”.
Why is the CMA’s strong action on Comparethemarket relevant to us in travel and tourism, especially the sector I know best, accommodation? Because roughly half of all hotel bookings are now made through online travel agents (OTAs) which also dominate search engine results for accommodation and travel.