Regulation of Digital Markets - still in the testing phase

The European Union has embarked on an unprecedented and ambitious experiment to regulate digital markets, in the form of the Digital Markets Act (DMA). The South African Competition Commission has recommended a series of ‘remedial actions’ be implemented by certain online platforms which act as intermediaries between businesses and consumers in South Africa. However, the jury is still out on whether these interventions in the digital sector will be effective in achieving their aims, and what the impact will be on the quality and accessibility of digital services, as well as on future innovation and competitiveness.

The DMA introduced a set of obligations and restrictions that will apply to companies which are designated by the European Commission (EC) as “gatekeepers”. To be designated as a gatekeeper, a company must provide one or more of the “core platform services” listed in Article 2(2) DMA, and meet three qualitative criteria set out in Article 3(1) DMA. The final list of core services comprises online intermediation services, online search engines, online social networking services, video-sharing platform services, number-independent interpersonal communications services, operating systems, web browsers, virtual assistants, cloud computing services, and online advertising services. The DMA also provides for certain quantitative thresholds which – if met – give rise to a rebuttable presumption that the qualitative gatekeeper criteria are fulfilled.?

Gatekeepers had until March 2024 to ensure compliance with these obligations, which relate to conduct like self-preferencing, bundling, and the use of customer data. ?Google reported that this required “intensive work over many months from engineers, researchers, product managers and product designers from across the company”. Consumers in Europe are already starting to feel the effects - for example, European users of Google Maps will now find they can no longer access maps via a single click on the search page. Disputes about whether the gatekeepers have complied with the DMA have already begun: at the time of writing, the EC had already opened 5 investigations into potential non-compliance with the rules by Apple, Google and Meta. ?Some countries, like the United Kingdom and Japan are considering legislation to regulate all Tech providers in key sectors (like App stores), rather than relying on potentially ineffective DMA-style regulation.

The South African Competition Commission’s intervention in digital markets, in the form of its final report on the Online Intermediary Platforms Market Inquiry (OIPMI) is different in a number of respects to the new regulatory regime created by the DMA. ?Firstly, the Commission’s recommendations are not legislation, and they do not create permanent legal obligations on any firms as part of an ex ante regulatory regime. Secondly, these recommendations do not apply to all providers of particular kinds of digital services, or to all providers which meet particular legislated criteria. Instead, the OIPMI focused only on particular kinds of platforms which the Commission identified as ‘intermediaries’ between certain suppliers of products or services (like hotels, App developers, and restaurants) and South African consumers. Within the particular kinds of intermediary platform selected for investigation, the Commission’s recommendations were only targeted at so-called “leading firms”. One of these, Booking.com, was not designated as a Gatekeeper in Europe at the time of the South African inquiry. Ten other companies, which the Commission targeted on the basis that they are “national restaurants chains” are not leading providers of a platform service at all. The Inquiry recommended these firms (and only these firms – and potentially also Amazon, should it establish a South African store) should implement a series of “remedial actions”.

In some cases, the Commission has recommended the transplantation of the DMA requirements, or something that is akin to them. For example, several platforms were asked to avoid self-preferencing. However, in many instances, the Commission’s recommendations extend well beyond the requirements imposed by the DMA, which primarily address concerns about competition and consumer protection. For example, the Commission recommended that Takealot offer historically disadvantaged sellers advertising credits and promotional rebates, personalized onboarding on its site, and waive its subscription fees. It recommended that Autotrader, Cars.co.za, Property24 and Private Property reduce their prices to small customers, and that Google make ZAR 180 million in advertising credits available to small platforms, and spend a further ZAR 150 million in training and product support for small firms and historically disadvantaged people. It recommended that Booking.com and Apple make “substantial investments” into programs to support historically disadvantaged ?accommodation providers and software developers. The Commission noted that for Apple and Google, the trigger for its recommendations was the “lack of a more robust and vibrant ecosystem in South Africa for paid apps”, although its report did not identify that this was caused by the conduct of these firms. Instead, the report ?focused on the fact that these firms don’t offer “local curation”, “despite the hundreds of millions in revenues generated from South Africa each year”. ?This echoed the Commission’s finding in its Preliminary report that lower taxation rates for global platforms disadvantages South African platforms. This suggests an exercise in taxation, rather than market regulation.

Unlike the DMA, these remedial actions are not permanent - in most cases, they were only required to be implemented for 4 years after July 2023. Some firms, like Google and Takealot, have apparently complied. ?However, appeals to the Competition Tribunal by Apple, Booking.com, Private Property, Famous Brands and UberEats, and review applications to the High Court by Apple and Booking.com have yet to be heard.

It is accordingly too early to assess how effective these interventions in digital markets will be. The great shift to digital has already offered massive benefits to South African consumers and businesses – especially small ones ?– who are now able to use highly accessible, cost effective and efficient online services to access critical products and services, like healthcare and education. This has brought substantial benefits to South African consumers and businesses, including lower prices, greater accessibility, more convenience and variety. The competitive dynamics in South African digital markets, and accordingly, the rationale for intervention, may be very different to European ones. In addition, South Africa already has competition legislation which addresses its unique context as a developing economy – in particular, to offer special protection to small businesses and those owned by historically disadvantaged persons.

South African online markets are evolving rapidly – as the rapid expansion in South Africa by online retailers Shein and Temu demonstrates. Neither of these retailers were scrutinized by the OIPMI, despite the significant effects they were already having on shopping patterns in South Africa. This provides a good illustration of how temporary remedial actions which are applied only to some firms, in certain South African digital markets, may not appropriately address changes which are happening across entire ecosystems, as the world digitalizes. Unpredictable, ad hoc regulation may hamper the evolution of these markets, especially those that are nascent, or rapidly changing in response to consumer preferences. ?It may also damage South Africa’s efforts to attract foreign direct investment, and roll-out new technologies. ?

It is notable that in the United States, whilst there has recently been an increased debate in antitrust circles on how corporate power is amassed and wielded, and what its consequences may be, not only for consumers, but also for workers, democracy and the environment, there has not yet been any advance towards DMA-style regulation.? The home of the global Tech giants seems far more concerned that that adding layers of regulatory red tape may undermine the incentives of companies to innovate, and harm their competitiveness in fast-growing industries like Artificial Intelligence.