The Competition Commission’s online intermediation platforms market inquiry has unravelled a web of “uncompetitive online business practices” of firms like Google. (Photo by Chesnot/Getty Images)
The Competition Commission’s online intermediation platforms market inquiry has unravelled a web of “uncompetitive online business practices” of firms like Google, Takealot, Uber Eats, Autotrader and Property 24 that are using tactics like “wide price parity” to maintain dominance in the local market.
The 123-page Final Report and Decision emerging from the commission’s two-year-long investigation, launched on 19 May 2021, was released at a media briefing in Pretoria on Monday. Commissioner Doris Tshepe and market inquiry chairperson James Hodge handed a copy of the report to the minister of trade industry and competition, Ebrahim Patel.
Tshepe said the scope of the inquiry was “quite vast” as it had focused on a wide range of online local and global platforms where businesses and consumers transact in the sale of goods and services.
“A market inquiry is different as a tool to the usual enforcement activities of the commission, and it typically looks at the general state of competition in that market and if there are any features that may impede, distort or restrict competition,” Tshepe said.
This may be through business models and supplier behaviours which have outcomes that adversely impact competition, she said, adding that in terms of the Competition Act, the commission is also mandated to “have regard to the impact of impeded competition on small businesses and historically disadvantaged persons, and the ability of national industries to compete in the international market”.
The report highlighted seven segments of the online market, identifying 12 businesses, where the commission’s investigation team found practices that generally “impede, distort or restrict competition,” and hamper the participation of small and medium enterprises and historically disadvantaged persons in the sector.
These included online platforms, travel, and accommodation; e-commerce; software application stores; online classifieds; food delivery, and transparent advertising.
It recommends several specific remedies, including a ban on “wide and narrow price parity” practices, discounted fees for SMES, locally flagged search identifiers and carousels and financial support for SME and black-owned online businesses.
According to the inquiry findings highlighted in the report, when it comes to online search leads, Google Search holds a “de facto monopoly, accounting for over 90% of all general searches across desktop, tablet, and mobile devices”.
“On Google Search itself, ranking matters as consumers show a predisposition to click on the first results assuming they are most relevant to the query …. That Google allows duplication where a platform appears in paid and organic results, means large platforms can dominate both the top paid and organic search results. The disadvantage faced by SMEs is compounded in the case of black-owned platforms that lack even venture-capital backing domestically,” the report noted.
“The inquiry finds that the Google Search dominance and business model distorts platform competition as small and new platforms struggle for visibility and customer acquisition.”
To remedy this, the commission requires Google to:
• Introduce a new free platform sites unit, or carousel, to display smaller South African platforms relevant to the search (for example, travel platforms in a travel search) and augment organic results with a content-rich display.
• Introduce a South African flag identifier and South African platform search filter to help consumers to easily identify and support local platforms.
• Provide R180 million in advertising credits for small platforms to use in customer acquisition along with free training to optimise advertising campaigns.
• Provide a further R150 million in training and support for SME and black-owned firms.
In travel, the commission found that the “wide and narrow price parity” contract clauses of Bookin.com (the largest online travel agent operating in South Africa) impedes competition and that its lack of diversity distorts competition from black communities.
“Booking.com imposes so-called ‘wide price parity’ conditions on hotels and other establishments which require them to offer room prices to Booking.com that are no less favourable than the room price offered to other OTAs. Wide price parity is now generally accepted to be a hardcore restraint of trade and Booking.com has removed these clauses in the EU but persists in applying them in SA,” the inquiry found.
“In essence, the clause prevents other platforms competing with Booking.com on price which not only harms consumers but impedes other OTAs from charging a lower booking commission to hotels in exchange for lower prices, hurting competition,” the report said.
The platform’s narrow price parity clauses also prohibit hotels and resorts from advertising their accommodation at lower prices on their own websites.
The commission’s report instructs Booking.com to remove these clauses and to provide “substantial programmes to provide funding of initiatives in the identification, onboarding, promotion and growth of SMEs that are black-owned and/or in black communities on the Booking.com platform.”
Takealot, found to have a dominant share of all online sales in South Africa, has similarly been instructed to remove its narrow price parity clauses that restrict retailers from offering their products cheaper on their own online channels. It was also found to be in direct competition with its retail online customers through its own Takealot Retail Division.
“This creates a conflict of interest in the same manner as Google, namely it sets the rules for the marketplace and at the same time competes with the marketplace sellers. Takealot too has incentives to favour itself, and at the very least its retail buyers on sales commission have strong incentives to tilt the balance in their favour,” the report said.
Some of the findings against Takealot were:
• Unilateral product gating where Takealot prohibited retailers from selling certain brands in competition with its retail division
• The use of seller data to inform its own retail offering and private label team to develop private label lines
• Takealot retail buyers pressuring suppliers where they are outcompeted on the platform by marketplace sellers selling the same product, resulting in the suppliers either raising their price to the marketplace sellers or threatening sellers with non-supply if they do not soften competition.
•The Takealot ‘Buy Box’ for branded items with multiple sellers selects the cheapest price of those in stock in the warehouse, rather than the cheapest price regardless of lead time. As consumers mostly select the Buy Box item, this favours Takealot retail as their products are generally in the warehouse.
•A failure to timeously resolve disputes.
“To address these distortions arising from the conflict of interest, Takealot is required to segregate its retail division from its marketplace operations and to prevent its retail services from accessing seller data and unilaterally stopping sellers from competing for certain brands,” the report said.
In addition, Takealot must introduce a 60-day dispute resolution process for marketplace sellers’ complaints on returns and stock loss which will be deemed resolved in favour of the seller if not resolved within 60 days. The ‘Buy Box’ must be re-engineered to reflect the cheapest (regardless of delivery time) and fastest options for the consumer.
The inquiry also found that the business model in e-commerce restricts the participation of historically disadvantaged businesses and that onboarding and promotions favours established businesses.
“To address this distortion, Takealot is to implement an HDP programme that provides personalised onboarding, the waiver of subscription fees for the first three months and at least R2 000 advertising credit for use in the first three months,” the report noted.
It must also offer promotional rebates and the inclusion of HDPs in HDP-specific campaigns on the platform.
The leading platforms in both property and automotive classifieds were also found to exercise “extensive price discrimination” based on the volume of listings that an agency or dealer brings, thereby discriminating against small businesses and HDPs.
It instructed Property24, Autotrader and Cars.co.za to “substantially reduce their prices to SME agents and dealers to a level closer to that of larger agents and dealers” and to provide special price packages for small and black-owned businesses. An application to force estate agents to divest from their preferred privatepropery.co.za platform will also be made to the tribunal.
Uber Eats and Mr D Food were found to be the leading platforms in restaurant food delivery with restaurant chains and thousands of independent restaurants listed, enabling them to offer consumers wide choice. Bolt Food is the only other “national” food delivery company operating a similar model.
“Local delivery services have emerged in areas not serviced by the national delivery platforms, such as townships and small towns. These are typically resident entrepreneurs without substantial capital backing and ability to offer a similar promotion-led model to the national platforms,” the report said.
The inquiry found that Uber Eats and Mr D were charging independent restaurants more to list on the platforms, and that some chains were dictating whether outlets could list on certain platforms or not.
“The inquiry finds the price differentiation impedes competition on and between platforms. To address this distortion, Uber Eats must implement the standardised, tiered commission fee structure it is currently experimenting with whereby independent restaurants have the option of selecting from a range of commission fees associated with different levels of service and/or monthly/ongoing charges,” the report noted.
“This currently offers a material reduction in the commission fee for the standard service levels and includes at least one commission fee tier significantly below that. Mr D Food must put in place a promotional rebate for independent restaurants on their gross sales which can be used for discounts or promotions on Mr D Food, along with monthly advertising credits. These effectively reduce the commission fee paid and promote greater sales for the independent restaurants.”
The inquiry also found that the pervasiveness of unidentified advertising on intermediation platforms distorts consumer choice, and undermines competitive outcomes.
“The practice encourages more visibility to be sold than would otherwise be tolerated by consumers, exacerbating the consumer and competitive effect. The practice distorts competition from SMEs which are less likely to be able to purchase visibility, especially where they face price differentiation in listing and promotional fees,” the report said.
Inquiry chairperson James Hodge said many of the platforms covered in the report had “seriously engaged with the commission” to work with it to find remedies that would be practical and reasonable to respond to the dynamic market.
He said that some of the remedies highlighted in the report could be implemented immediately and for a temporary three-to-five-year period, although it was likely practices would be permanently adopted.
“We hope that through these remedial actions, there will be benefits to the platform, to the businesses registered on the platform and to consumers. We would expect more intense platform competition in each of these categories that would lead to more choice and lower prices for consumers and hope we level the playing field for SMMEs so we have a more inclusive digital economy, to see more South Africans as providers of platforms and not just users of platforms,” he said.
He said companies have the right to appeal the report’s findings and remedies.
Patel welcomed the inquiry findings, saying it was the first of its kind that tackles developed market online challenges to be undertaken by an African and a developing country.
“Our world, our economies are being reshaped by the digital market revolution …. Governments around the world are grappling with coming up with a new policy framework to deal with these challenges,” he said.
He added that the inquiry highlighted how leading global players are displacing small local businesses.