Comment: If the Meerkats were fined £18m, what about the OTAs?

The UK competition watchdog should now focus on the ‘Vampire Squids’, says Bed & Breakfast Association David Weston

The competition watchdog, the CMA, fined (home of those TV meerkats) £17.9 million last week.

What heinous offence had Sergei and his cuddly friends committed to warrant such a hefty financial punishment? Don’t those friendly meerkats simply compare prices for us?

Well no, so-called ‘price comparison’ sites are not simply passive aids to finding the best price across the market. They are misnamed as they are actually active players in their marketplaces, taking a cut of every transaction and directing people to suppliers which pay them commission.

In this case, the CMA found that between December 2015 and December 2017 those cunning meerkats had been imposing ‘rate parity’ clauses on the suppliers they listed, preventing those suppliers from offering a lower price on other, rival ‘price comparison’ sites.

This “breached competition law…[and] as a result, competition between price comparison websites, and between home insurers selling through these platforms was restricted. The CMA found that this is likely to have resulted in higher insurance premiums”.

How did these mysterious-sounding rate parity clauses (or ‘wide MFNs’, ‘most-favoured nation clauses’, in the competition jargon) put up the prices that you and I pay for our home insurance, when we thought we were just finding the cheapest rates available?

The CMA says the rate parity clauses “prohibited the home insurers from offering lower prices on other comparison websites and protected ComparetheMarket from being undercut elsewhere.

“They also made it harder for ComparetheMarket’s rivals to expand and challenge the company’s already strong market position as other price comparison websites were restricted from beating it on price… Rival comparison sites were restricted in gaining a price advantage over ComparetheMarket, for example, by lowering their commission fees to encourage those insurers to quote lower prices on their platforms”.

Why is the CMA’s strong action on Comparethemarket relevant to us in travel and tourism, especially the sector I know best, accommodation? Because roughly half of all hotel bookings are now made through online travel agents (OTAs) which also dominate search engine results for accommodation and travel.

These OTAs are price comparison websites for hotels and B&Bs in the same way that Comparethemarket is for insurance.

And OTAs routinely impose rate parity clauses on B&Bs and hotels. In The Spectator last January (“Vampire squids are killing Britain’s B&Bs”), Mary Wakefield argued that “the giant vampire squids of travel [the two giant OTAs] are beginning to suck the life out of the small fry they claim to help”.

“You might imagine a struggling hotel or B&B could offer their own lower rates to tempt customers. Nope. In both the UK and US, can insist on ‘rate parity’ clauses which mean that hotels are actually not allowed to discount their own prices to their own customers on their own websites.”

Last week’s £18 million fine hinged on “wide MFNs” – which OTAs also used in the past to stop hotels and B&Bs giving lower prices to other OTAs, but which the major OTAs were forced to stop a few years ago after competition regulators intervened.

The Spectator’s ‘Vampire squids’ article is about the continuing use of another type of rate parity clause – “narrow MFNs” – which OTAs still use to stop hotels and B&Bs giving lower prices to their own direct customers on their own websites.

We at the Bed & Breakfast Association strongly feel that B&Bs and hotels should be free to do so, as I argued in my Travel Weekly piece last year (‘Why OTA rate parity clauses should be banned’).

We filed five formal complaints about OTA practices with the CMA back in July 2017.

The CMA did take action on misleading marketing and fake discounts, but the two calls we made on the CMA which are still unaddressed are (1) to ban rate parity clauses imposed by OTAs, and (2) to ban “brandjacking” by OTAs (i.e. bidding on hotel’s names with search engines without separate express permission).

Well done to readers who are still with me. One of the big problems with this issue is that it is so technical that hardly anyone understands it.

Compared with the actual scale of the problem – the billions overpaid by customers, and the billions unfairly extracted from the turnover of small businesses by giant platforms due to the distorted competition in our marketplace and unfair contract terms – it gets very little media coverage.

A BBC South East report by James Dunn this July was an exception, explaining the issue well in only three minutes using the experiences of B&B owners in Sussex.

What it all boils down to is simple: an accommodation owner should be free to set their own prices, and to discount to their own direct customers on their own website.

Michael Grenfell, CMA executive director for enforcement, said last week: “Today’s action should come as a warning – when we find evidence that the law has been broken, we will not hesitate to step in and protect consumers.”

Consumers need protection in our sector too. So please, CMA, after levelling your £18 million fine on the meerkats, have a closer look now at those ‘vampire squids’.

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