UK regulators are set to fight harmful Online Choice Architecture design
The design choices made by companies for their websites and online services are facing growing scrutiny from UK regulators, who are examining the potential harm that such designs may cause to consumers and to competition. In fact, Online Choice Architecture (OCA) practices have been examined in a number of antitrust cases brought by the CMA in recent years, including in respect of hotel bookings [1], car rental websites[2], and online gambling[3].
Previous analysis by the UK Competition and Markets Authority (CMA) in the field has now been supplemented by a joint position paper authored by the CMA and the Information Commissioner’s Office (ICO), examining how such designs may undermine consumer choice and control over personal information, and infringe data protection law.
Online Choice Architecture
Online Choice Architecture concerns the ways in which companies present information and choices to users of websites and other online services. In digital markets, these design choices play a central role in influencing consumer and market outcomes. Common examples of OCA include the order in which search results are displayed, the number of steps needed to cancel a subscription, or whether pricing is displayed in a clear and upfront manner.
OCA is a neutral term, and effective choice architecture may be helpful to consumers and ultimately pro-competitive. However, recent analysis published by UK regulators highlights that some forms of OCA can cause harm by hiding crucial information, setting default choices that may not align with the preferences or best interests of consumers, or ultimately benefit the online service provider to the detriment of consumers and competition on the market.
The CMA has warned that harmful OCA practices may persist even in competitive markets with engaged consumers, as a result of consumers tending to have low awareness of OCA practices and given that the potential profitability of OCA practices may cause competing businesses to adopt similar OCA practices.
Types of OCA
The CMA has identified three broad types of OCA practices: (1) choice structure, (2) choice information, and (3) choice pressure:
- Choice structure concerns how choices are presented to consumers. The choice architecture may determine how choices are structured or ranked, including which options consumers can see, how time-consuming it is to make a choice between the options presented, and what happens once a consumer has made a choice. Choice structure can be used in ways that are detrimental to consumers, such as by imposing default options that are not in their best interests.
- Choice information concerns the information provided to consumers when presenting choices. Such information can be framed in ways that highlight certain items of information over others, or hide information until the consumer is closer to making a purchase. For example, an online service provider may show only part of the price to draw in consumers, and not reveal the full price of the product or service offered until the consumer has progressed further towards confirming their purchase.
- Choice pressure concerns how consumers' choices may be indirectly influenced. An online service provider may design their website to exert pressure on consumers to make certain choices by leveraging consumer behaviour or imposing artificial time pressure. For example, a website may alert a user that an item is highly popular and has limited stock availability, or is only available for a limited time.
Harm to consumers and competition from OCA practices
The CMA has noted that harmful OCA are a key area of focus, and that it will actively investigate practices that may harm consumers or competition using its regulatory powers. In particular, the CMA has identified three potential types of harm to consumers and competition resulting from the use of OCA practices, namely that they can (1) distort consumer behaviour, (2) weaken or distort competition, and (3) maintain, leverage or exploit market power.
- OCA can distort consumer behaviour: the CMA explains that OCA practices have the potential to distort consumer behaviour and decision-making as they may influence consumers to purchase unnecessary or unsuitable products or services, spend more than they want or had planned to, or generally choose inferior products or services.
- OCA can weaken or distort competition: harmful OCA practices can weaken or distort competition by shifting competition away from competition on the merits of the products or services offered (such as on price and quality) and towards whichever provider can deploy the most effective suite of OCA practices.
- OCA can maintain, leverage or exploit market power: certain OCA practices may be particularly problematic where a business has market power, as it may use such practices to maintain, leverage or exploit its market power (e.g. through using default auto renewals for subscription services and/or by making it hard for its users to switch to competitors). This can ultimately lead to consumer harms such as higher prices, lower quality products or services, unfair contracts, compulsory data sharing, and difficulty in switching away from the online service provider.
Specific harm to consumer privacy
In addition to potentially infringing consumer protection law and/or competition law, a recent joint position paper by the CMA and the ICO – the UK’s data protection regulator – explained that OCA practices may also infringe data protection law. This would be the case where such practices steer individuals to decisions that do not reflect their privacy preferences and/or make it harder for them to choose more privacy-friendly options.
Comment
The CMA states that it will take action to challenge OCA practices that mislead and harm consumers and use its full range of powers in doing so, including enforcement action against businesses. In the joint position paper, the ICO likewise warned that it may take formal regulatory action against firms that use OCA practices in ways that contravene data protection laws.
In addition, in April 2023, the Digital Markets, Competition and Consumers Bill was introduced to Parliament. This would create a new framework for the regulation of digital markets, enforced by the CMA. As part of the proposed regime, the CMA would be able to designate businesses that have “Strategic Market Status” in respect of particular digital activities and regulate such businesses. Notably, the bill also proposes major changes to the enforcement of consumer protection law, by empowering the CMA to enforce consumer law directly, without requiring recourse to the courts, and to impose financial penalties on an infringing undertaking. It is accordingly likely that the misuse and abuse of OCA practices will be the target of further and increased enforcement activity by UK regulators in the near future.
Footnotes
1 CMA, 'Major overhaul of hotel booking sector after CMA action’: https://www.gov.uk/government/news/major-overhaul-of-hotel-booking-sector-after-cma-action.
2 CMA, ‘Car hire sites to provide full costs upfront after CMA action’: https://www.gov.uk/government/news/car-hire-sites-to-provide-full-costs-upfront-after-cma-action.
3 CMA, ‘Online gambling firms remove restrictions on cash withdrawals’: https://www.gov.uk/government/news/online-gambling-firms-remove-restrictions-on-cash-withdrawals.