Thursday, May 08, 2014

Old friends in new frocks? MFN clauses in the online hotel booking sector/10

(Previous installments here)

The Competition Commission, as part of its investigation into the PMI industry, found that retail MFN provisions were present in the contracts between platforms and PMI providers covering the vast majority of policies sold in 2012 via the four largest PCWs in the UK. In this sector, a retail MFN clause aims at avoiding that, based on an identical consumer proposition and risk profile, either an insurer can provide a lower price on any other online sales channel than it is advertised on the PCW’s website, so called wide (or online-sales) MFNs, or the insurer can provide a lower price on its own website than it is advertised on the PCW’s website, so called narrow (or own website) MFNs.

While narrow MFNs are slightly more widespread than wide MFNs in the PMI sector, the Competition Commission maintained that wide MFN clauses have a very significant impact because of what the Commission called a “network effect:” when a PMI policy sold through PCWs is covered by at least one wide MFN clause with one PCW, this stops any other PCW offering cheaper premiums for that policy. In other words, a wide retail MFN clause with a single PCW constrains the pricing of the insurance policy at issue on all PCWs. Significantly, the Competition Commission also noted that most of the policies sold through PCWs are covered by at least one wide MFN clause with one PCW.

Much in line with the Bundeskartellamt’s competition assessment of retail MFN clauses in the hotel online booking case briefly outlined above, the Competition Commission, in the provisional findings published last December, found that wide MFN clauses reduce competition and lead to higher premiums. Among the possible remedies, the Commission envisaged a prohibition on wide MFN clauses on price comparison websites. Narrow MFN clauses, however, according to the Competition Commission should not be banned, because their anticompetitive effects are much limited. Apparently, the Competition Commission took in some consideration the main argument put forth by platforms in defense of narrow MFN clauses. Without some form of MFN, the PCWs maintained that the end consumer would go to a price comparison site for search, but then switch to the insurer in order to make the actual purchase, on the premise that the insurer would be willing to pass on to the end consumer at least part of the CPA fee. In the short term, the end consumer is better off because she saves a small amount on her insurance policy premium. Longer term, however, the tangible benefits brought to consumers by PCWs would likely evaporate.

(To be continued)