Internet Comparison Sites

27 June 2011 - London

Harriet C. Gamper

Civic Consulting

Theory v. Reality

IDEAL

‘Frictionless comparison’ ICS differentiate on quality

aspects as well as price Effective screening means

best options are oversampled Feedback mechanism

(experience goods) Consumers are able to cut

through the excess of information to find a suitable product

REALITY

Too much information and choice – consumers cannot make an informed decision

Large overlap between users of the 4 most visited UK ICS (Mintel)

Consumers search on ICS then purchase direct from the retailer

Consumer distrust

1. Perception that suppliers do not cover the whole market

2. ICS are not impartial – rankings are influenced by commission bias

3. Comparisons are not like for like

Market coverage

Impartiality

Like for like comparisons

Underlying economics

Two-sided platforms

ConsumersService is free

TradersPay commission

ICS find a valuable match between the two

Funding:1. Advertising2. Sale of data3. Commissions:

Pay-per-clickPay-per-action

A paradoxical business model

Seller-side paradox Decision to affiliate intensifies pricing

rivalry on the platform

Buyer-side paradox No price dispersion and so no longer a

reason to consult ICS at all – consumers go straight to retailer (Ellison and Ellison)

Conclusions: Market coverage

is only partial Price dispersion

will persist

The two-sided business model is flawed

What does this mean for consumers? Two-sided ICSs argue that they are impartial:

“Proud to be an independent company providing impartial and unbiased comparison”

Do ICSs actually work? To find out, consumers would have to research the

market themselves ′Satisficing′/bounded rationality

Waste of time ′Shopping around′ amounts to an ineffective remedy

Trader obfuscation Blocking of shopping agents

PriceRunner Website – ‘What makes PriceRunner different?’ “PriceRunner also includes hundreds of online AND high street stores you won't find anywhere else. Some of them simply can't afford to advertise - despite offering some cracking deals. And others would rather you didn't know how uncompetitive their prices (including those all-important ‘hidden extras') really are. We list them anyway!” (http://www.pricerunner.co.uk/user-guide/impartiality.html)

Refusal to be listed – eg Direct Line http://www.youtube.com/watch?v=T1CYDQG9RIs

Price obfuscation Bait/headline pricing Tariff chaos – changing prices/tariffs too frequently

Conclusion – the release of complete and up-to-date information is crucial to allow ICS to operate effectively

Three cumulative levels of disclosure

Obligation for sellers to release pricing data to allow ICS to provide full market coverage (ban on refusal to deal/be listed) ICS support Article 21 of the telecommunications package

With regards to relational services (eg retail banking & utilities), obligation for sellers to release usage profile data (with consumer consent) to allow ICS to provide customised price comparisons – consumer data portability Data ownership issues around reselling without consumer

consent

With regards to relational services, obligation for sellers to tell consumers if there is a better tariff for their profile – on-going duty to disclose

Possible solutions/1: Change the business model from two-sided to one-

sidedConsumers fund ICS rather than firms by paying: 1. A fee: problem – consumer bias against paying upfront for

advice (“hyperbolic discounting”)2. A subscription (eg Which? model): problem – excludes some

consumers 3. A % of savings made: problem – can be difficult to calculate

saving (not always)

The incentives of ICS change: Full market coverage Accurate rankings Best algorithms Most accurate and up-to-date information from firms

Possible solutions/2? Independent comparison site, for eg run by national regulator or at EU

level Expensive - need to raise consumer awareness Resource-intensive Difficult to keep up-to-date with changing technologies

Code of conduct / self regulation Weak – as cannot be enforced and sites can simply leave the code Studies have shown a lack of consumer trust in online trust

marks/certification

Banning two-sided ICSs through regulation (ban on commissions) Proportionality? Ban selling consumer data (without permission) / use of cookies

(links to digital agenda)

Use existing EU legislation to sponsor solution

UCPD provisions on misleading actions and omissions mean traders have a duty to disclose information to consumers Only applies to B2C In a one-sided business model where the consumer pays the

ICS, could the ICS be regarding as acting on behalf of the consumer?

Traders would be forced to disclose full information, allowing more effective comparisons

Only one-sided business models could be allowed to benefit from this interpretation

Therefore one-sided business models would enjoy a competitive edge over two-sided models.

Thanks

Harriet C. Gamper

Civic Consulting - Berlin

gamper@civic-consulting.de

www.civic-consulting.de