The Competition Commission of South Africa on 13 July released a provisional report on its digital markets inquiry that was launched in May 2021 to study competition concerns in e-commerce, app stores, travel and accommodation aggregators, food delivery platforms, and online classifieds. The report identifies market features that impede, restrict or distort competition amongst platforms and between businesses using these platforms.
Why does this matter? The South African watchdog has examined in its market inquiry many of the same digital markets (e-commerce, app stores, food delivery) and platforms (Google Search, Play Store, App Store) that the Competition Commission of India (CCI) is also studying, providing a trove of information that might be of use to the Indian regulator. Moreover, regulators from around the world, including India, the UK and Australia, and now South Africa, have identified similar issues and remedies for anticompetitive conduct in digital markets. This global consensus might help strengthen and streamline regulatory regimes around the world.
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Competition among platforms: findings and recommendations
The Inquiry makes the following provisional findings in respect of features which affect competition among online intermediation platforms in South Africa, and potential remedial actions. For each of these markets, the Inquiry identifies leading platforms to which the findings and recommendations apply, “as it is typically leading platforms that are in a position to shape platform competition or which matter most for business user competition, or participation opportunities.”
General Search
Leading platform: Google Search
- Google Search is a de facto monopolist in general search in South Africa.
- The default arrangements of Google Search on both Android and iOS mobile devices have contributed to entrenching its status as a de facto monopoly.
- The prominence of paid results (i.e. results based on payments or advertising results) at the top of the Google search results page (SERP) and their lack of sufficient distinction from organic results restricts competition across most categories as it strongly favours leading platforms with deep pockets.
- Intermediation platform competition is further impeded by Google Search self-preferencing its own platforms in shopping, travel and local search, which impedes competition from metasearch, comparator sites and online travel agencies.
Recommendations:
- Paid results integrated into the search results should be clearly distinguishable as advertising by including (i) a prominent shading and border, and (ii) a large, bold and unambiguous ‘ADVERT’ label in the middle above the impression.
- Organic search results should appear before any paid results.
- Google may not place its own platforms in a guaranteed position on the search results page, nor favour them in any way in organic search results through intended or unintended algorithm bias.
- Google must afford rival metasearch sites, comparator sites (shopping or other) and online travel agents the same opportunity to provide content and visual rich impressions that it affords its own platforms.
- Google may no longer impose minimum bid thresholds for paid results.
- An end to default arrangement for Google Search on iOS and Android devices sold in South Africa.
E-commerce
Leading platforms: Takealot
- Narrow price parity clauses by the leading platform impede potential competition from the marketplace seller’s own direct channel on price and disincentivise sellers from price differentiation across e-commerce platforms to the detriment of platform competition.
- The widespread subsidisation of products through pricing below variable costs has distorted competition and is no longer justified for start-up reasons.
Recommendations:
- The removal and prohibition on price parity clauses, both wide (as applied to competing platforms) and narrow (as applied to the business user’s own direct online channel) from contracts with business users.
- Remedial action to end predatory conduct at a product level on a temporary or ongoing basis, or alternatively, the Commission to consider investigation and prosecution of predatory conduct as a suitable deterrent.
App Stores
Leading platforms: Apple App Store and Google Play Store
- Complete exclusion of rival software app stores and side-loading by Apple impedes effective competition for commission fees.
- The default arrangements of Google Play on Android devices have impeded competition from other Android software app stores, entrenching Google Play as the near monopoly on Android devices.
- A lack of competition has resulted in excessive commission fees to the detriment of South African app developers, publishers and consumers of apps.
- The recently introduced Google Play Points loyalty scheme leverages visibility and customer acquisition on the Google Play store to extract discounts from app developers to fund the loyalty scheme, which cannot be matched by competing stores lacking the leverage of Google Play.
Recommendations:
- An end to anti-steering provisions for all apps, enabling them to communicate an alternative external payment mechanism along with a clickable link to that external payment option.
- An end to default arrangement for Google Play on Android devices.
- Prohibition on exclusionary loyalty scheme design, including schemes that include only a subset of business users, and which are part or whole funded by business user-funded discounts. Loyalty schemes should include all business users and be fully funded by the platform.
Food delivery
Leading platforms: Mr Delivery and UberEats
- The contracting of restaurant chains by the leading platforms incentivises the chains to focus their support on these platforms. This results in a lack of support for rival national and local food delivery platforms by restaurant chains, impeding their ability to enter, expand and compete. Because of contract incentives, numerous national restaurant chains actively prevent franchisees from contracting with rival national or local delivery platforms that are not approved, limiting them to the leading platforms only.
- Price parity clauses in the existing contracts of UberEats may result in self-enforcement by restaurants which impedes competition from other platforms on the basis of commission fees and lower menu prices.
- Predatory conduct such as aggressive promotion and delivery subsidisation has driven out local delivery platforms in areas where they compete.
Recommendations:
- Leading food delivery platforms may not contract with national restaurant chains in a manner that incentivises them to limit multi-homing and direct restaurant numbers and volumes to the leading delivery platforms only.
- International and national restaurant chains may not restrict their franchisees’ choice of local food delivery platforms and must communicate the lack of restrictions to franchisees.
- Removal of price parity clauses from contracts, and communication to all restaurants that they are free to price their menu differently across delivery platforms and their own direct channels.
- Remedial action to end predatory conduct at a local area level or individual restaurant chain on a temporary or ongoing basis.
- Greater transparency to the consumer of either the menu surcharge for each restaurant on the platform relative to their takeaway or dine-in menu and/or the share of meal payment accruing to the delivery platform as opposed to the restaurant.
Travel and accommodation
Leading platforms: Booking.com and Airbnb
- Wide price parity clauses, including narrow parity provisions, applied by leading platforms impede platform competition through lower commissions and prices and impede potential competition from accommodation and travel providers’ own direct online booking channels on price.
- Loyalty schemes of leading platforms leverage important visibility on their platforms to extract discounts from accommodation and travel providers to fund the loyalty scheme, impeding competition from smaller platforms that cannot replicate the same leverage.
Recommendation
- The removal and prohibition on price parity clauses, both wide (as applied to competing platforms) and narrow (as applied to the business user’s own direct online channel) from contracts with business users.
- Prohibition on exclusionary loyalty scheme design, including schemes that include only a subset of business users, and which are part or whole funded by business user-funded discounts. Loyalty schemes must include all business users and be fully funded by the platform.
Online classifieds
Leading platforms: Property24 and Private Property in property classifieds, and Autotrader and Cars.co.za in automotive classifieds
- The lack of interoperability of the listing engine software of the leading property classifieds with third-party platforms denies these platforms property listings, and in so doing impedes platform competition.
- The levy of an R500 fee on listings sourced from third-party listing engines, which may be the product of collusive conduct, inhibits estate agents from switching.
- The shareholding of large estate agents in Private Property through the Estate Agents Property Portal Company (EAPPC), and the partnership with Rebosa (Real Estate Business Owners of South Africa), incentivise continued use of Private Property and impede third-party platforms from securing support and listings from the large agents.
- Multi-year contracts concluded by Property24 incentivise continued use of Property24 and crowd out support for competing platforms.
Recommendations:
- The removal and prohibition on leading classified platforms charging a fee for an incoming listing feed from agents or dealers using third-party listing engines, alternatively the Commission will investigate for potential collusive conduct.
- Leading listing engine suppliers (i.e. including Propdata) or vertically integrated platforms (e.g. Property24 and Private Property) must interoperate with third-party platforms to supply listings on request by business users for no fee.
- Contracts with business users should permit termination on one month’s notice and may not incentivise or bind the business user to contract for a multi-year period.
- The divestiture of the large estate agents through the Estate Agents Property Portal Company (EAPPC) from Private Property.
- Industry organisations such as Rebosa should refrain from coordinating commercial conduct by its members, such as the investment and/or partnering with particular intermediation platforms.
Competition among businesses on platforms: findings and recommendations
The Inquiry makes the following findings in respect of features which impede, restrict or distort competition among business users present on online intermediation platforms in South Africa.
Across all sectors
- The lack of transparency over pay-for-position or sponsored ranking distorts consumer choice and ultimately promotes excessive pricing and sale of sponsored ranking, which in turn distorts business user competition as larger users outspend smaller ones. The lack of transparency includes the lack of adequate distinction such as a small ‘Ad’ in the corner, or the use of terms that consumers would not associate with adverts (such as ‘featured’, premium’, ‘preferred’) and which may actively mislead consumers.
Recommendation
- Paid results integrated into the search results are required to be clearly distinguishable as advertising.
- The top search results screen may only have organic (or natural) search results and any paid results can only appear once the consumer has scrolled down.
- Register with the Advertising Regulatory Board (ARB) to subject practices to the current Code of Advertising and develop an online intermediation platform-specific Annexure of good practices.
E-Commerce
- Product gating (disallowing certain brands of products) by Takealot, which is not at the supplier’s behest, removes direct sellers on the platform, resulting in potentially higher prices or fewer promotions.
- The use of seller data by Takealot to inform their own retail (private brands) offering on the marketplace expropriates and undermines innovation and risk-taking by marketplace sellers to the detriment of competition and consumer welfare.
- The Buy Box algorithm favours Takealot as it displays the cheapest in-stock, not cheapest overall, and almost all Takealot Retail is in its warehouse and therefore in-stock, unlike marketplace sellers that have more restricted warehouse space.
- Takealot raises marketplace seller rival’s costs through the lack of a speedy dispute resolution process.
- Marketplace sellers are not permitted to offer “unboxed deals” which permit Takealot Retail to clear returned stock.
- Takealot Retail benefits from the use of unsold promotional display inventory.
Recommendation:
- Prohibition on product gating, except at the behest of the supplier.
- Internal separation of the retail division from the operation of the marketplace, with own retail (private brands) treated on an arm’s length basis including in respect of the following:
- A prohibition on retail buyers accessing marketplace seller data, or alternatively, providing equal access to data for marketplace sellers.
- Fair and non-discriminatory treatment in promotion applications.
- Equality in the treatment of returns and any resale of returns on the marketplace (e.g. through unboxed deals).
- Removal of algorithm biases, including that of the Buy Box.
- Investigation of complaints in respect of own retail buyer conduct, including common suppliers.
- No preferential access to unsold display advertising inventory.
- Implement a speedy dispute resolution process including a provision to compensate marketplace sellers in the interim where the dispute is not resolved within the timeframes.
Software application stores
- Inadequate app store competition results in excessive commission fees, reducing domestic app developer incentives and higher pricing of global apps to South African consumers.
- Side-loading warnings or restrictions, anti- steering provisions and the lack of in-app payment alternatives prevent business users from bypassing the excessive fees.
- A lack of SA-specific curation hinders the discoverability of SA apps on the software app stores
Recommendation:
- The regulation of software app store commission fees for the South African storefront sales at some prescribed maximum
- A requirement to provide SA-specific curation of local apps and discoverability on that basis.
- Free promotional credits for SA apps to be spent on local or foreign storefronts.
Food delivery
- Extreme commission fee “discrimination” of up to 60% higher for independent restaurants distorts relative pricing and restaurant competition on food delivery platforms as restaurants seek to pass on commission fees in whole or part to consumers through higher menu prices.
- Greater platform promotional spend on restaurant chains relative to independent restaurants, and the ability to reduce commission fees in exchange for marketing commitments, similarly distorts competition on the platform by distorting relative pricing and visibility.
Recommendation
- Implement a standardised rate card that complies with a maximum cap on fee differentiation between the average low volume user category and the average high volume user categories, including both listing and promotional fees.
- A standardised and equitable rate card offer in exchange for commission fees for marketing commitments across all restaurants on the platform.
Travel and accommodation
- Excessive pricing and sale of sponsored ranking distort business user competition as larger accommodation or travel providers outspend smaller ones to achieve more prominent visibility and sales.
- Discrimination in favour of large hotel chains distorts competition by enabling the large chains to effectively get enhanced visibility for the same standard commission rate paid by smaller hotel groups and individual hotels.
- The contractual clause in car rental platforms which allows it or the rental car company to increase prices for last-minute bookings may promote collusive outcomes.
- Asymmetric payment terms require the platform to be paid quicker than the business user.
Recommendation:
- Implement a standardised rate card that complies with a maximum cap on fee differentiation between the average low volume user category and the average high volume user categories, including both listing and promotional fees.
- The removal of the offending clause on higher last-minute prices from contracts with car rental companies.
- Symmetric payment terms for bookings where the option exists for payment through the platform or the hotel.
- Travel metasearch engines should highlight the cheapest option prominently to consumers even if it does not appear first on the ranking.
Online Classifieds
- Extreme listing and promotional fee disparity of up to 300% between low volume and high volume business users results in excessive prices and impedes effective participation by small and medium enterprises and HDPs (historically disadvantaged persons) on the platform.
- Excessive pricing and sale of sponsored ranking distort business user competition as larger agents or dealers outspend smaller ones.
Recommendation:
- Implement a standardised rate card that complies with a maximum cap on fee differentiation between the average low volume user category and the average high volume user categories, including both listing and promotional fees.
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