Most favoured nation clause competition law investigation
First published by Author on November 09, 2018 in the following categories: Investigations Market Dominance Abuse and tagged with cma | market abuse | pricing
There’s been an update in an ongoing most favoured nation clause competition law investigation being conducted by the CMA.
The CMA (Competition and Markets Authority) has an open investigation looking into whether there’s been a breach of competition law. This case surrounds the use of a ‘most favoured nation clause’ used by a price comparison website in the home insurance market.
The companies being investigated for alleged breaches of competition law include BGL (Holdings) Limited; BGL Group Limited; BISL Limited (BISL); and Compare The Market Limited.
Most favoured nation clause competition law investigation
The most favoured nation clause competition law investigation by the CMA was opened in September 2017. A decision was made in March this year to progress the investigation. Since then, written and oral representations and statements of objection have been actioned.
The allegations are that the use of most favoured nation clauses in the home insurance market by a price comparison website is breaching competition law.
What is a most favoured nation clause?
A most favoured nation clause is usually a contractual provision where a seller or service provider agrees to always give their best terms available to a buyer or service recipient.
The term stems from how nations would treat each other in terms of international trade. For example, a most favoured nation trade agreement between the UK and the US would mean each nation received the best terms possible in any trade deals.
What are the competition law issues?
Most favoured nation clause competition law issues can lead to a breach of legislation. Although you’d think that a most favoured nation clause would always benefit the consumer by always allowing for lower prices, regulators are cracking down on the practice where there are adverse impacts on markets.
This kind of “price parity” clause can unfairly favour big market players with the largest shares of a market. If the big players are always going to get exclusive deals on the best terms, how can others in the market compete? How can new players enter the market?
This could also keep prices artificially high where the big market players increase their profit margins off the back of such clauses rather than passing savings on to the consumer.
Ultimately, most favoured nation clause competition law investigations need to look at whether unfair market dominance is actually restricting competition in the market. This is the issue at the heart of the current CMA investigation, and it’s a case we’ll be reviewing in the future.
No decisions have been made as of yet. If the CMA finds that the most favoured nation clauses in this particular case are breaching important competition law, huge fines could follow.