In July 2023, the South African Competition Commission published its final report and decision in relation to its long-ongoing online intermediation platforms market inquiry.  This is the first market inquiry to be completed following substantial amendments to the market inquiry provisions of the Competition Act which were aimed at increasing the Commission’s powers when conducting these inquiries.

Market inquiries enable the Commission to investigate the general state of competition, the levels of concentration in and structure of a market for particular goods or services without the need to refer to the conduct or activities a particular named firm. 

The South African regulatory regime governing market inquiries is novel in that it specifically also mandates the Commission to have regard to the impact of the adverse effect on competition on small and medium businesses (SME’s), or firms controlled or owned by historically disadvantaged persons (HDP) (which includes a category of individuals who, before the South African Constitution came into operation, were disadvantaged by unfair discrimination on the basis of race, or juristic persons controlled by such individuals) when deciding whether any feature of the market impedes, restricts or distorts competition within that market.

The Commission’s broad powers mean that it is able to use market inquiries (involving a process to gather information including information requests, questionnaires and surveys, data reviews, consultations with interested firms and public hearings) to make findings and impose remedial actions on firms in circumstances where they have not engaged in conduct that would ordinarily amount to a contravention the Competition Act.  For example, where the Commission seeks to prosecute a dominant firm for engaging in an exclusionary act it would need to demonstrate that the anti-competitive effect of that act outweighs its technological efficiency or other pro-competitive gain, but in the context of a market inquiry the bar is substantially lower.  Under the broad powers to impose remedial actions, the Commission would only need to demonstrate that there is an adverse effect on competition, which is established if “any feature, or combination of features, of a market for goods or services impedes, restricts or distorts competition in the market”.  This substantially lower bar enables the Commission to impose remedial actions on firms for example, where the features of the market make it challenging for SMEs or HDP firms to effectively compete.  

On completion of the market inquiry, which includes participation by interested parties, the Commission must determine the action to be taken to remedy an adverse effect on competition.  Amongst other remedial action, the Commission can make a recommendation to the Competition Tribunal that a firm must divest itself of shares, interests or assets.  This controversial remedy was introduced with the amendments to the market inquiry provisions of the Competition Act and enables the Tribunal to order divestiture in circumstances even where a firm has not been found to have engaged in prohibited conduct in contravention of the Competition Act but to address an adverse effect on competition (which can include circumstances where the market structure impedes the ability of SMEs or firms owned by HDPs to compete).  This interventionist remedy has been recommended for the first time in the online intermediation platform market inquiry with the Commission recommending that certain shareholders divest of their shareholding in Private Property, a South African portal containing property listings.  The Tribunal is yet to hear this application and it remains to be seen how the firms impacted by this will respond.

In addition to the controversial divestiture remedy, a number of the other remedies imposed by the Commission in the online intermediation platforms market inquiry are far-reaching with many specifically aimed at ensuring that SMEs and firms owned or controlled by HDPs are able to more effectively compete with the leading platforms.  For example, in its consideration of the Google Search platform, the Commission found that Google’s business model distorts competition as small and new platforms struggle for visibility and customer acquisition.  Whilst the Commission may have found it challenging to successfully prosecute this business model as an abuse of dominance, it was able, through the procedures permitted by the market inquiry framework, to impose remedial actions focussed on improving paid and organic result visibility for smaller South African platforms.

Further remedial action requires Google to provide R180 million in advertising credits for small platforms because of the Commission’s findings that these smaller platforms have smaller marketing budgets, and a requirement to provide a further R150 million in training, product support and other measures to ‘offset the competitive disadvantages faced on Google Search’. 

Public interest remedies have also been imposed on other platforms including for example on which is required to put in place a programme to provide funding for initiatives to promote and grow SMEs that are HDPs on the platform, and a requirement for Takealot, Property24, Autotrader and to each implement specific HDP programmes to enable participation by HDP firms.  The Commission has also recommended that Government funds should be allocated to support HDP digital economy startups.

Whilst these remedies will be welcomed by the protected class in the South African context, they increase the cost of doing business which is not similarly felt by others in the market.  This may have a negative effect by deterring further investment and innovation, a strategy which may have been adopted in the past to enable the firm to reach its leading market position.  Similarly, players in other industries may be reluctant to innovate and grow for fear that if an inquiry in their industry is undertaken, similar remedies may be imposed – not because the firm engages in prohibited anti-competitive conduct, but because it was able to innovate and grow through good business practices.

At this stage, it is not clear what stance the firms impacted by the Commission’s report and remedies may be, but any entity materially and adversely affected by the determination of the Commission may appeal that determination to the Tribunal. 

Please reach out to your contact at Norton Rose Fulbright to discuss the Commission’s market inquiry powers and the remedial actions imposed in the Online Intermediation Platform Market Inquiry.