The OFT has announced that it intends to investigate how businesses advertise and price their goods and services both online and offline. The key motivation for the investigation is the increased use of the Internet, which has resulted in new advertising and pricing practices being used. The OFT will investigate the extent to which misleading advertising and pricing is used online and offline and how harmful this is to consumers. The OFT has the power to carry out this investigation under Section 5 of the Enterprise Act 2002 which allows it to conduct market studies focusing on competition and consumer issues.

Specifically, the OFT will look at:

  • The scale of misleading advertising and pricing within particular industries or markets, such as the travel or entertainment industry or the markets for furniture or electrical goods. The OFT has yet to confirm which industries/markets it will investigate;
  • How effective current consumer protection legislation is (including the relatively new Consumer Protection from Unfair Trading Regulations) and how this legislation applies to online transactions;
  • The effect on consumers of particular pricing practices including ‘drip’ pricing (where consumers only see part of the price upfront and the price increases in increments during the buying process), ‘baiting’ (advertising discounts which are only available on a very limited number of products), ‘reference pricing’ (promotions that create a high reference price compared to the sale price, for example, ‘was £50, now £20’, ‘50% off’ or ‘half price’), time limited offers (sales which, for example, last for one day only or which finish at the end of the month) and complex pricing (where it is difficult for consumers to assess the price per product, for example ‘3 for 2’ or non-inclusive prices where lots of separate (often necessary) components are needed to generate a final price). The OFT will also consider how these practices impact on the accuracy and usefulness of price comparison websites;
  • The use of personal information in advertising and pricing, in particular behavioural advertising and the practice of tailoring prices to individual consumers on the basis of their personal data; and
  • The use of opt-in or opt-out boxes.

Broadcast advertisements will be excluded from the investigation.

If the OFT finds practices that it believes are likely to harm consumers it has a range of actions available to it which include recommending industry self regulation or codes of practice or recommending that the government makes regulatory or legislative changes. If the OFT discovers evidence of breaches of consumer law or anti-competitive conduct by any business in any industry or market it could conduct a detailed investigation and take enforcement action. If the OFT finds that there are features of an industry/market that are anti-competitive then it may make a market investigation reference to the Competition Commission.

The OFT are seeking views on the scope of the investigation which should be submitted by the 18 September. The investigation will begin ‘in the Autumn’.

Click here for a copy of the OFT’s announcement