Commission to release final report into online markets on Monday

The Competition Commission will on Monday release its hotly anticipated final report flowing from its online intermediation platforms inquiry.

The final report, publication of which has been delayed several times, is what the commission calls a “proactive” measure to prevent monopolies from forming in the e-commerce space. But a preliminary report has already got many industry players hot under the collar, with the commission taking aim at companies such as Google and homegrown e-commerce player Takealot.

For example, the preliminary report, released a year ago, listed several findings regarding “self-preferencing conduct” by Takealot resulting from its “hybrid platform” business model.

Takealot runs both an online marketplace for third-party sellers and its own retail division that competes with it. The Competition Commission proposed forcing the separation of Takealot’s retail and marketplace operations.

Takealot Group CEO Mamongae Mahlare told the TechCentral Show earlier this month that the commission should be careful to support rather than obstruct the development of e-commerce in South Africa.

The commission seems to be of the opinion that small businesses in South Africa and local app developers are negatively affected by large global companies. It is concerned that these entities either charge too much for the average South African consumer, or that they have the lion’s share of business in the country, thus reducing opportunities for local entrepreneurs.

Online intermediation platforms include e-commerce marketplaces, online classified marketplaces, software application stores, and intermediated services such as accommodation, travel, transport and food delivery, the commission said. This means that large online websites like Booking.com also fall within the scope of the inquiry.

Google

US internet giant Google also did not escape the commission’s attention. The provisional findings recommended that Google be forced to make it much clearer to South African internet users which search results are paid for – and said it may even seek to end its status as the default search engine on smartphones sold in the country.

The commission proposed a raft of regulations that cut to the heart of Google’s business model. “The inquiry has provisionally found that Google Search plays an important role in directing consumers to the different platforms, and in this way shapes platform competition,” it said.

“The prevalence of paid search at the top of the search results page without adequate identifiers as advertising raises platform customer acquisition costs and favours large, often global platforms. Preferential placement of their own specialist search units also distorts competition in Google’s favour.”

Read: Competition Commission takes direct aim at Google

As a result, the inquiry found provisionally that paid search results should be “prominently labelled as advertising, with borders and shading to be clearer to consumers, and that the top of the page is reserved for organic, or natural, search results based on relevance only, uninfluenced by payments”.

Bowmans competition lawyer Heather Irvine said the inquiry by the commission is particularly important because it is a kind of road map for the commission to test the new powers of the amended Competition Act, which was gazetted in 2019.

“The current powers are far more extensive, and it will be very interesting to see what happens as this will be a test case for the limits of their powers,” Irvine said. “It will also be a very expensive undertaking.

“We have had no clarity on any adjustments from the preliminary report, so it will depend on their recommendations and whether they are reasonable and practical. Of course, firms can appeal if the commission moves too far outside the scope of the remedial actions.”

The Free Market Foundation said last year that the commission wanted to punish leading enterprises in the digital space for being successful and made a submission opposing the provisional recommendations of the commission’s online intermediation platforms market inquiry.

“The recommendations in the report seek to institute more regulations on the country’s economy by punishing leading enterprises for being successful,” the foundation said in a statement about its submission to the commission.

“The Free Market Foundation views the recommendations as a continuation of the commission’s misguided activities that serve to punish successful businesses that acquired their market position through voluntary transactions that satisfied consumer preferences. The potential for competition from new entrants or other, not-as-successful, competitors is there for these companies, yet they are being sanctioned,” it said.

The barring of contractual terms, which were agreed to in the market … undermines the freedom to contract

“The barring of contractual terms, which were agreed to in the market – like price parity clauses, a recommendation of the report — undermines the freedom to contract, which is central to any market economy. The barring of ‘self-preferencing’ violates property rights and amounts to making it illegal for businesses to use their resources to favour themselves and their interests in the market,” the foundation said.

“The economic social engineering proposed by the report will see historically disadvantaged persons being given preferential treatment over the companies that were the subject of the market inquiry. It represents a worrying trend in the commission’s work, taking its cue from legislation. Any change in market dynamics must be spearheaded by the market itself; this includes the demographic transformation of that market. The aim ought to be making sure that the institution of private property is protected, and valid contracts enforced. Forcing private companies to associate or give preference to historically disadvantaged persons is an egregious intervention in market processes.

“With the South African economy experiencing record high unemployment levels and dim growth prospects, it makes it harder to do business in the country. This is what the implementation of these recommendations will do, and should not be a course of action we pursue. As such, the recommendations of the online intermediation market inquiry provisional report should be opposed,” the foundation said.

On Friday, foundation legal researcher Zakhele Mthembu told TechCentral that the preliminary report released last year was opposed on the grounds of its being anathema to general market freedom. “It operated on the premise that other businesses – competitors – are entitled to markets and customers that voluntarily patronise these ‘big’ online intermediation platforms like Google, Takealot or the Google Play store,” he said.

“Judging from the press release of the commission, the situation has not changed that much. The final report could be damaging to our economic growth prospects. The tech sector, which is being targeted by the inquiry, is one of the few sectors of the economy that is growing worldwide, and the commission seeking to strangle it with more regulations is not the answer.”

Mthembu said consumers, through patronising these platforms in their billions, have chosen freely with whom they want to do business. “Seeking to punish successful companies that have high market share is not the answer to our economic woes.”  — © 2023 NewsCentral Media

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