Robust intervention recommended in the Commission’s preliminary report on the online platform inquiry

On 13 July 2022, the Competition Commission of South Africa (Commission) released for public comment its provisional report (Report) following a 14-month inquiry into the online platforms market (the Inquiry). The document is comprehensive and ambitious in equal measure and reveals the regulator’s fervent intention to take meaningful steps to regulate business practice in the digital space.

The Inquiry focused on online intermediation platforms, which included platforms facilitating eCommerce, app stores, travel and accommodation, food delivery, and online classifieds. 

The Inquiry identified market features that have adverse effects on competition – both amongst the various platforms, as well as between businesses using these platforms – or result in exploitation due to a lack of competition. Furthermore, the Inquiry considered the extent to which small and medium enterprises and Historically Disadvantaged Persons (HDPs) participate and compete.

The Inquiry sought to identify so-called “leading platforms”: those that receive the most consumer traffic, upon which business users are dependent, and which are likely to be entrenched. The Report thus covers a number of household names such as Takealot, Property24 and Mr Delivery, as well as international players such as the Apple and Google App stores, UberEats and Google Search.

The Inquiry’s provisional findings look to address a number of concerns identified across the various categories of platforms, including:

• Lack of transparency over pay-for-position rankings – to be addressed with stricter rules on how and where paid results
  can be displayed and ranked.
• Exploitative and discriminatory fees which exclude smaller businesses that cannot match the spend of larger players – to be addressed with fee caps and standard rate cards.
• Asymmetric business terms that allow the platform to be paid ahead of the business user – to be addressed by allowing customers to pay the business directly rather than through the platform.
• Platform exclusivity restricting direct sales or use of other channels – to be addressed by allowing this only at the behest of the supplier, not the platform.
• Self-preferencing conduct – to be addressed by separating retail operations from operation of the marketplace, fair access to data, removal of “algorithm bias” and other measures to ensure equal treatment of users.
• Inadequate app store competition, sideloading restrictions and a lack of discoverability of South African apps – to be addressed by regulation of commission fees, curation and improved visibility
  of local apps.
  
  

Targeted obligations

The above remedies are to be imposed only on the identified “leading platforms”, many of which may feel unfairly targeted in circumstances where challengers are not similarly restricted. Given that many of the markets may be more dynamic than the Report suggests, targeted obligations could have unintended consequences for competition down the line. 

No doubt, concerns will be raised about the extent to which such robust management of business models amounts to regulatory overreach. While business users and start-ups (especially the more marginalised ones the Inquiry’s recommendations seek to protect) stand to benefit, in some respects this may be to the initial detriment of consumers, who may face higher prices for goods where deep discounting on larger platforms may now be restricted. The Commisison may counter with the argument that in due course, more robust competition between and on platforms will result in lower prices, as well as an increased ability for small businesses to compete on price (rather than on paying for visibility).   

Transformation in the digital economy

The Inquiry’s provisional views on HDP participation indicate that the digital economy is far less transformed than the broader economy, which itself is relatively untransformed. The Report recognises that there are significant challenges rooted in funding and support. Notably, the Inquiry found that capital generation through seed funding and venture capital is limited for HDPs – often these are only available if the investors expressly mandate that funding go to HDP entrepreneurs.

In response, the Report recommends that private investors and government funding channels specifically commit to HDP mandates. More directly, it recommends that all leading platforms provide HDP businesses with personalised onboarding, waiving of onboarding costs and fees, free promotional credits, fees that do not exceed the best placed users, and opportunities for consumers to discover HDP businesses on the relevant platform.

The findings and recommendations are provisional. Nevertheless, they portend potentially stringent and costly efforts for the platforms affected, should these become final. The Commission’s well-intended but stringent remedies could have undesirable effects on the growth of an economy that is largely reliant on foreign investments. Stakeholders and the public have a short, six-week window, until close of business on 24 August 2022, to make submissions to the Inquiry on these findings and recommendations. All submissions should be sent to oipmi@compcom.co.za.

Parties interested in making submissions to the Inquiry should substantiate their submissions with evidence (where relevant); such parties are encouraged to consider the strategic and legal consequences of making submissions, or failing to make submissions.

The Inquiry is expected to release a further version of the report within the next few weeks, pending the resolution of certain confidentiality claims. The final report is currently expected in November 2022.

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Read the full publication at Cliffe Dekker Hofmeyr.