Contentious probe into digital markets gets more time

The Competition Commission’s investigation into online markets in South Africa, already on the go for almost two years — and already proving controversial — has been given another extension.

The period for the completion of the inquiry and the final report was set to expire on Saturday, 18 February, but the commission has been given another two months to complete its work by trade, industry & competition minister Ebrahim Patel.

This is after the commission drew heavy fire for proposing sweeping interventions in the market that could have a deeply negative impact on market leaders such as Takealot (in e-commerce) and Google (in Internet search).

The investigation, led by the commission’s chief economist, James Hodge, was launched in May 2021 as a “proactive” measure to prevent monopolies from forming in the e-commerce space and in digital markets more broadly. The probe was meant to be concluded last November.

Among preliminary findings published last July, the commission has proposed imposing radical changes to Google’s search results in South Africa that go to the heart of the US Internet giant’s business model. This includes forcing Google to make it much clearer to South African users which search results are paid for and even possibly ending its status as the default search engine on smartphones sold in the country.

The draft report also had significant implications for online marketplaces such as Takealot, with the commission warning of conflicts of interest for companies operating such marketplaces and proposing structural separation between retail and wholesale marketplace operations to ensure neutrality.

‘Punishing leading enteprises’

The Free Market Foundation last August blasted the commission over the draft recommendations, arguing that they “seek to institute more regulations on the country’s economy by punishing leading enterprises for being successful”.

“The FMF 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 commission’s Hodge said at the time the investigation was launched that it would focus on whether there were features of online markets in South Africa that could “tip them into high levels of concentration” that could prove harmful for businesses and retail consumers. He said it was important that online markets did not develop to reflect the inequalities present in the rest of the economy.

On the latest extension – the second such extension granted by the minister for this particular investigation – the Competition Commission said it will “permit the continuation of the inquiry’s extensive consultation process on additional recommendations”.

“The commission calls for comments on the inquiry’s recommended Commission Guidelines or Section 78 Regulations in terms of the Competition Act 89 of 1998 (as amended). These guidelines seek to prohibit certain conduct of emerging leading platforms that have not yet occurred in some of the intermediation categories, or which may occur in the future,” it said in a statement on Monday.

“The inquiry recommends these regulations or guidelines to permit the identification and review of new and emerging platforms and to complement the immediate remedial actions aimed at the current market features that the inquiry has provisionally found to have an adverse effect on competition. Given that the inquiry has gained material insights into the business models and competitive dynamics among intermediation platforms that may entrench an uncompetitive and exclusionary market structure, the inquiry is obliged to consider whether the tools at the disposal of the commission are able to adequately address these future developments, and if not, recommend legislative or regulatory changes.

“After considering the initial submissions on the provisional report recommendations along with other factors in respect of future enforcement, the inquiry is currently of the view that section 78 regulations are desirable as they can strengthen enforcement going forward.”  — © 2023 NewsCentral Media

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