Competition Commission launches inquiry into online shops

The Competition Commission launched its inquiry into online shops on Wednesday to better understand online markets in South Africa and determine if there are any factors hindering competition or undermining the public interest.

According to the commission, this will ensure these markets remain contestable and competitive in the best interests of consumers and the businesses that depend on them. The inquiry is called the Online Intermediation Platforms Market Inquiry (Online Markets Inquiry).

The commission invited consumers to comment on the draft terms of reference in February. These comments were used to finalise and gazette the final terms of reference in April 2021.

“The launch of this market inquiry takes place at a time when online markets are becoming increasingly important as one of the drivers of economic growth in South Africa,” commissioner Tembinkosi Bonakele said.

The inquiry will be completed within 18 months.

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Minister of Trade, Industry and Competition Ebrahim Patel also said in his budget vote speech on Tuesday the government would publish a competition policy. Digital markets will feature prominently and, according to Bonakele, then market inquiry is a practical implementation of the policy.

Reasons for the inquiry

Bonakele said the market inquiry was started because the commission had reason to believe there are market features, or a combination of features, that impede, distort or restrict competition among online platforms that could undermine the purposes of the Competition Act.

The commission has also received several complaints alleging anti-competitive conduct in some online markets. Online markets are becoming more important in the economy and it is recognised that online markets have strong network effects, while consumer data can drive a potential winner-take-all outcome. Normal enforcement tools may be inadequate on their own to address any potential competition distortions.

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“Online markets have become an increasingly important channel for businesses to reach consumers, a trend which has accelerated under the Covid-19 pandemic and which is likely to continue. Online markets provide the convenience of comparing a wide range of options and then safely purchasing online,” Bonakele said.

For businesses, online markets offer a ready-made infrastructure to sell online and a way to reach an enormous number of consumers nationally and internationally. Bonakele said it is also increasingly important for South African businesses, including SMEs and businesses owned by historically disadvantaged people to participate.

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Scope of the inquiry

The inquiry will cover online markets that facilitate transactions between businesses and consumers for the sale of goods, services and software, including:

• eCommerce marketplaces
• online classified market places
• software application stores and
• intermediated services such as accommodation, travel and food delivery.

The inquiry will focus broadly on three areas of competition and public interest of market features that:

• could hamper competition among the online markets
• could lead to discriminatory or exploitative treatment of business users and
• could negatively affect the participation of SMEs and HDP owned businesses.

The panel will also evaluate the extent to which the findings and any identified remedies can be generalised across online intermediation platforms and determine appropriate remedies where an adverse effect on competition or the purposes of the Competition Act are found.

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Exclusions

The inquiry will not include:

• eHailing services, which were the subject of the Public Passenger Transport Market Inquiry
• search and social media platforms broadly and
• fintech platforms, except where they act as payment services for online transactions.

The investigation panel

• James Hodge, chief economist and acting deputy commissioner, will chair the inquiry.
• Doris Tshepe, an attorney, will be a panel member.

Online shop and consumer participation

Online businesses and consumers can participate in the inquiry. The guidelines for participation and details about the administrative phases of the inquiry have been published on the commission’s website (www.compcom.co.za).