On 22 November 2016, the Competition Market Authority (CMA) announced the opening of an initial investigation into suspected breaches of competition law in relation to the supply of auction services in the UK.
The CMA announced that this investigation will focus on both suspected anti-competitive agreements and the suspected abuse of dominance, specifically, suspected exclusionary and restrictive pricing practices including most favoured nations provisions in respect to online sales.
Although the CMA did not name the companies under investigation, it is believed that the CMA is targeting a business that provides real-time services to auction house in exchange of a commission on auction sales. The CMA suspects the business in question restricts new competitors from entering the market for online auction services through quasi-exclusive deals with auction houses. MFN provisions could in this scenario prevent a new competitor from undercutting the established company on price.
Most favoured nation provisions also known as MFNs or “price parity clauses”, are contractual provisions by which the seller promises to the buyer that it will not offer to another buyer better terms (most of the time pricing terms). Over the past few year, MFNs clauses have become the subject of many competition authorities’ investigations across all Europe. Those investigations have targeted businesses that hold market power in these open markets and can through the use of MFNs foreclose new entrants.
In January 2014, the UK competition regulator, the Office of Fair Trading (OFT) accepted binding commitments from leading on-line booking platforms, Expedia and Booking.com to alter the way they operated their MFN clauses with a major hotel chain International Hotel Group. The OFT considered MFN clauses favoured existing powerful market participants by dampening price competition. This in turn acted as a barrier to entry deterring new competitors.
In a similar case the month before the German Federal Cartel Office prohibited leading German hotel portal company HRS from applying a MFN clause which required HRS’s hotel partners to offer their lowest rates to HRS’s booking website. The Cartel Office believed MFN clauses created barriers to entry and prevented price competition. Given the fact that HRS had a market share of more than 30%, the effects of the MFN clause in question were particularly pronounced.
The CMA will now run an initial investigation during which it will gather information and will have to decide whether or not there has been a competition law breach. The CMA currently estimates that it will decide by May 2017 whether to proceed with the investigation or to close it.