CMA begin preliminary inquiry into comparison sites
THE Competition and Markets Authority (CMA) have announced that they are conducting an initial study into price comparison websites (PCWs), with the possibility of turning this study into a "more-in-depth investigation."
The study will focus on how such PCWs affect competition between the suppliers they feature, on what customers expect from these sites, and on how effective current regulatory approaches to them are.
In some ways, the announcement of this research can be regarded as a reaction to the proposals regarding PCWs the CMA made in their energy market investigation [PDF] from June.
This suggested easing the requirements on such sites, which the CMA believe should not be obliged to list every available deal or tariff on the energy market.
Yet while it's conceivable that the CMA are effectively taking a second look at their own proposals, it should be noted that they're primarily concentrating on PCWs in four sectors: broadband, home insurance, credit cards and flights.
This means that, while they may draw on their previous work in the energy sector, it won't be their main concern.
As such, the study may not see them tinkering with their previous judgements at all. In fact, it might even see them advocating for their proposals on energy market PCWs to be applied to PCWs in every sector.
Part of the Market
Insofar as these proposals want to remove Ofgem's 'Whole of the Market' requirement for energy-sector PCWs, this may be a bad thing.
With the removal of this requirement, PCWs will be able to feature only the deals they have an interest in featuring.
As a result, they'll be able to negotiate exclusive deals with certain suppliers, and then not list any deals from competing suppliers which might be better than the deal for which they receive a commission.
The only safeguard proposed by the CMA against such an abuse of the system is that PCWs "provide clear messaging concerning what results are displayed."
This may alert customers to the partiality of the results provided by a certain PCW, yet it's arguable that one of the reasons why people go to such sites is to take the hassle out of searching for the best possible deal for them.
In other words, the very fact that they're on a price comparison website might mean they're not especially inclined to go rummaging around for the small print, or to go searching for other PCWs that might feature a better deal.
Because of this, the CMA's proposals on energy PCWs might end up depriving some customers of the value for money.
And as the CMA admit in the final report of their energy investigation, their proposals essentially confirm that 'price comparison website' is something of a misnomer, since according to them such sites shouldn't be "repositories of all available tariffs."
Instead, they're now "brokers offering their customers good deals."
And in this case, "good deal" doesn't mean 'best possible deal in the entire sector.' Rather, it means something like 'a better deal from a particular supplier than would have been available if the PCW hadn't acted as an agent between supplier and customer.'
This view was criticised by the Energy Committee, who in July urged the CMA to keep the PCW system as it currently was.
Their concerns notwithstanding, the CMA believe that the new system will give PCWs greater incentive to compete with each other to land discounted deals on particular tariffs.
However, while increased competition may very well follow, it could be at the cost of hiding deals from other suppliers that may actually be cheaper or better for particular customers.
In light of how PCWs already limit the number of deals they list which are 'fulfillable' (i.e. ready to be switched to via the PCW itself), this may further narrow the choice available to customers.
It's therefore into these uncertain crossroads that the CMA's new study enters.
While its announcement may have come as something as a surprise, it was already written in the energy investigation's final report that "the CMA should recommend that Ofgem review the regulatory framework for PCWs."
This view was expressed by British Gas owner Centrica in response to the CMA's proposed withdrawal of the Whole of the Market requirement.
However, contrary to Centrica's wishes, it will be the CMA investigating the PCW regulatory framework, and not Ofgem.
This might have something to do with an in-progress review of PCWs that was transferred from Ofgem to the CMA after it was discovered that Ofgem staff had been contacting some PCWs and urging them to change their behaviour.
The behaviour in question related to the allegation that certain PCWs were gaming their search engine results, colluding with each other to remove their respective sites from searches on particular keywords.
More simply, they were divvying up keywords amongst themselves, with some PCWs taking one set of words and some PCWs taking others.
If this is true, then it would be a breach of the Competition Act. However, the CMA won't decide this question until at least the end of this October.
Nonetheless, it further complicates the study they've just launched. This is at least because, from one angle, the new CMA-proposed ability to leave out certain deals is a close equivalent to the activity of paying not to appear in web searches when particular words are typed.
They both similarly remove deals from public accessibility, even if the conspiratorial 'negative matching' that some PCWs have been accused of committing is more heinous.
And if PCWs are ultimately allowed not to list every available tariff, then there's the distant possibility they may collude with each other on which tariffs they separately focus on.
This would be bad because competition with respect to particular suppliers and particular tariffs would dry up, in that certain PCWs would potentially enjoy a 'right' to these suppliers and tariffs that isn't threatened by competition.
In one respect, the CMA's new inquiry aims to tackle such a possible issue by reviewing the regulations on PCWs.
Similarly, it will look into whether it's worth making customers more aware as to how exactly PCWs such as Choose earn their living.
If it deems within the next six months that customers should know more about the commissions comparison sites receive and how it might influence the services they provide, then the CMA will launch a 12-month investigation.
This would be in the vein of their recent reviews of the energy and banking markets. Accordingly, it would seek to lay out some concrete proposals as to how PCWs might be reformed to make them work better for customers.
However, for the time being there are no specific plans for actions the CMA might possibly take for a more competitive market. At the moment, they've simply opened a public consultation that will run until October 24th 2016, when they'll no longer be accepting views on the matter from interested parties.
From then on, they'll begin looking into the price comparison market in more depth.
The question is, will they use the opportunity to revise the recommendations of their energy investigation, or will they effectively apply these recommendations to PCWs in all customer-facing sectors?
This remains an open question at the moment. However, given that the CMA have affirmed that they'll "draw on what [they have] learned from previous work in a range of sectors," it's possible that it'll be more than sites covering the energy sector that will have relaxed obligations to reflect as much as the market as possible.