CMA launches three investigations
Trainline, Virgin Atlantic, and Red Driving School are under scrutiny
The UK Competition and Markets Authority (CMA), the independent government body that protects consumers, has launched investigations into three companies: Trainline, Virgin Atlantic, and Red Driving School.
These investigations pertain to the practice of drip pricing, which is when charges are progressively added during a buying process so that customers are not shown the full price of a service upfront. These investigations follow an earlier CMA action against the ticket reseller StubHub this year, where the company was ordered to pay nearly £1.5 million in customer refunds and penalties for the same drip pricing practice. This practice misleads customers about the true price of a product, but also distorts market competition by making companies appear artificially cheaper than their competitors.
Analysis
These investigations fall into a trend of escalating CMA enforcement regarding consumer pricing practices. The StubHub action earlier this year has cemented the fact that the CMA is willing and able to move beyond just investigations, and actually administer a financial penalty.
Politically, there is the angle of increasing pressure on household budgets. This means consumer protection is likely to remain a priority for the Burnham government.
What does this mean for the sector?
- The travel and booking sector faces a broader review of their pricing presentation practices, so companies in this sector are likely to review their current pricings
- Companies that use drip pricing as a competitive tool, essentially banking on customers not comparing total costs, face a structural challenge to their business model due to the CMA
- There is commercial significance to these investigations, clear through Trainline’s 13% fall in share price on the day of the investigation announcement
How to use this in applications
Competition and regulatory teams at law firms handle the bulk of the work on a matter like this. Firms assisting the likes of Trainline will have to help them respond to the CMA’s information requests, and help the company decide whether to resolve the issue through new commitments or by contesting the CMA’s findings. The StubHub event was a negotiated outcome which involved behavioural commitments, so companies may want to take the same approach here.
In the case of an infringement decision by the CMA, litigation teams at law firms will be able to challenge this on the behalf of indicted companies. These decisions by the CMA can mean facing fines of up to 10% of the company’s global turnover, so there is a strong incentive for the companies to appeal against these findings through the Competition Appeal Tribunal.
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