MFNs: the latest turn in the policy debate – key lessons from the CAT’s judgment on CompareTheMarket’s use of wide MFNs in home insurance

Abstract

For the last ten years, most-favoured-nation clauses (MFNs), also known as price parity clauses, have remained a hotly debated topic in competition policy. The direction of travel has generally been one-way, culminating with the UK and EU vertical block exemption regimes designating wide MFNs as ‘hardcore’ or excluded restrictions respectively. However, the UK Competition Appeal Tribunal’s judgment in BGL (Holdings) Limited v. Competition and Markets Authority injects nuance into the debate. The CAT found that, not only had the Competition and Markets Authority not proved its case on anti-competitive effects, but that it was unlikely that, in this case, wide MFNs had any effect on the key market outcomes of retail prices (i.e. insurance premiums), commissions paid by insurers to CompareTheMarket or increased barriers to entry. The CAT’s judgment and the economic evidence presented throughout the case provide valuable insights into how the competitive effects of wide MFNs should be assessed, why harmful effects may not arise and the role that econometric evidence can play. As explained in this article, at most, MFNs (whether wide or narrow) only directly restrict intra-brand competition and, if coverage and adherence to the MFNs are limited, competitive effects (whether pro-competitive or anti-competitive) may not arise. In this case, there was an opportunity to test empirically for any competitive effects, as CompareTheMarket removed its wide MFNs shortly after the CMA’s investigation opened (and no other price comparison website had them in place). As described by the CAT, ‘such a “before and after” consideration at least prima facie lends itself to econometric analysis’, which can provide a robust comparison to the situation that prevailed when wide MFNs were applied. In contrast, the CAT raised concerns with the qualitative evidence relied on by the CMA and its absence of any quantitative analysis of the competitive effects, if any, of the wide MFNs.