This blog was co-authored by Julia Sham-Guild and James Donald
The Covid-19 pandemic has forced many industries to become highly reliant on digital markets. The gradual move over the past few decades and this recent sharp uptake as a result of Covid-19 has resulted in an increased need for regulators to be able to monitor the conduct of parties in this sector.
The European Commission recently released its proposed artificial intelligence (AI) regulations, while the United States Congress published five antitrust bills aimed at regulating tech giants. The competition authorities in South Africa have started to focus on digital markets and have launched a number of initiatives that focus on technology and digital platforms.
The Digital Economy Report
The South African Competition Commission (SACC) issued a much welcomed updated report on its intended approach to digital economies in South Africa in 2021. The Digital Economy Report focuses on key areas including the SACC’s approach to mergers, cartel conduct and abuse of dominance in the digital economy.
In regard to mergers, the SACC indicated that it intends to require dominant tech companies to inform it of all domestic acquisitions, including investments in start-ups and any global acquisitions of targets that have some presence in South Africa. The SACC would like global tech mergers to be filed concurrently in South Africa and other major jurisdictions to encourage collaboration between regulators. The SACC has only instituted certain portions of the Digital Economy Report, but it is likely to fully integrate its approach to mergers in digital markets in future. Firms should monitor the SACC’s developing approach and consider timing implications to avoid delays in receiving approval for mergers in South Africa.
The SACC indicated that new forms of collusion between competitors could result from the increase in digital markets and that existing mechanisms for detecting and investigating collusion may not be sufficient. The SACC intends to set up a forensic laboratory for digital cartels and establish guidelines for digital markets in South Africa.
The SACC also noted the risk that dominant firms may stifle the digital economy and that vertically integrated digital firms will own but also compete with sellers on those platforms, potentially resulting in self-preferencing.
Online Market Inquiry
In May 2021, the SACC launched the Online Market Inquiry to address potential concerns regarding regulating competition in digital economies. The Online Market will focus on features of the market that prevent competition amongst platforms, result in discriminatory or exploitative treatment of users, and have a negative effect on participation by small and medium enterprises (SMEs) and firms operated by historically disadvantaged persons (HDPs).
Platforms that intermediate transactions between business users and consumers, including e-commerce marketplaces, online classifieds, travel and accommodation aggregators, short-term accommodation intermediation, food delivery, app stores, and any other platforms identified will be considered.
The outcome will be important as it will provide a clearer view of the SACC’s approach to digital markets, and consumers of digital platforms will have further transparency regarding how the market operates. The market inquiry recommendations by the SACC will be binding on parties in the market.
Small Merger Guidelines
The SACC published the draft Small Merger Guidelines for public comment in May 2021, in terms of which it is proposes that parties voluntarily inform the SACC of all small mergers where the acquiring firm or target firm operates in a “digital market”, and where financial or market share thresholds are met. In the past, mergers have escaped competition scrutiny on the basis that the thresholds for notification were not met.
As the Small Merger Guidelines are still in draft format, it is not clear what is specifically included in a “digital market”. It is recommended that parties continue to monitor the SACC’s approach to this sector.
Buyer Power Regulations
Provisions relating to dominant buyers were recently were enacted, which prohibit a dominant buyer in the ecommerce and online services sector, from requiring or imposing unfair prices or trading conditions on HDP or SME sellers.
If an HDP is supplying 20 per cent or less of the purchases to the dominant buyer, the dominant buyer must not require or impose unfair prices or trading conditions on the HDP. This is however a moving goal post and should be monitored.
As can be seen, the SACC is taking active and aggressive steps to consider transactions and conduct in digital markets in order to future-proof these markets to ensure that the conduct of tech giants does not have an impact on smaller players in the market, and to ensure that digital markets remain robust. Firms operating digital markets can expect increasing regulation in the future and, even if a firm is not dominant, it is recommended to seek advice to ensure competition law compliance in South Africa.