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Competition in the Digital Economy

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Competition in the Digital Economy COMPETITION IN THE DIGITAL ECONOMY FOR PUBLIC COMMENTS competition regulation for a growing and inclusive economy 1 4.5 Digitalising Government Services .........................................................................................................46 TABLE OF 4.6 Promoting Inclusion In Financial Services ............................................................................................47 CONTENTS 4.7 Prioritisation For Maximum Effectiveness ............................................................................................48 4.8 A Role For Regional Coordination ........................................................................................................50 CHAPTER 5: IMPACT OF COVID-19 ON THE DIGITAL ECONOMY ......................................................................................52 EXECUTIVE SUMMARY .........................................................................................................................................04 CONCLUSION ........................................................................................................................................................55 CHAPTER 1: INTRODUCTION 1.1 Who Is This Publication For? ..................................................................................................................09 1.2 Why The Need For This Publication? ...................................................................................................09 LIST OF TABLES, FIGURES AND BOXES 1.3 What Is The Digital Economy? ...............................................................................................................10 1.4 Structure Of This Publication .................................................................................................................14 Table 1: Key indicators of digital connectivity in BRICS countries ...............................................................14 1.5 The Digital Economy And Competition Policy ....................................................................................14 Table 2: Examples of two-sided digital platforms ..........................................................................................17 CHAPTER 2: Table 3: Digital platforms active in South Africa ..............................................................................................18 DIGITAL PLATFORMS IN SOUTH AFRICA Table 4: Trends in notified mergers in digital markets, 2011 – 2018 ...........................................................25 2.1 What Is A Digital Platform? ....................................................................................................................16 Table 5: Summary of the Commission’s previous cases in digital markets ................................................38 2.2 Digital Platforms In South Africa ...........................................................................................................18 2.3 Big Data, Data-Rich Markets And Cloud Computing .........................................................................20 2.4 Financial Technology And Banking ......................................................................................................21 Figure 1: Digital usage around the world in 2020 ..........................................................................................12 Figure 2: Digital penetration in South Africa in 2020 .....................................................................................12 CHAPTER 3: Figure 3: Growth of digital penetration in South Africa in one year ..........................................................13 COMPETITION LAW IN DIGITAL MARKETS Figure 4: Internet usage predictions for South Africa ...................................................................................13 3.1 Merger Control ........................................................................................................................................24 Figure 5: The Fintech Value Chain ....................................................................................................................21 3.2 Cartel Conduct ........................................................................................................................................30 3.3 Market Conduct And Abuse Of Dominance .......................................................................................33 Figure 6: Shares in Zoom, Netflix and Amazon on the rise......................................................................... 53 3.4 Commission’s Previous Interventions In Digital Markets ...................................................................38 CHAPTER 4: Box 1: Big tech disruptions in banking ..........................................................................................................23 REGULATORY ISSUES IN THE DIGITAL ECONOMY Box 2: The Naspers/WeBuyCars Merger .........................................................................................................27 4.1 Promoting Access & Connectivity: Infrastructure & Digital Penetration ...........................................40 Box 3: The US Airline Case ...............................................................................................................................31 4.2 Avoiding Regulatory Responses That Distort Markets .......................................................................41 Box 4: The Google Search (Shopping) Case: Abuse of Market Power ..................................................35 4.4 Consumer Protection: Data Privacy And Sovereignty ........................................................................42 Box 5: Bundeskartellamt & Facebook ...............................................................................................................42 4.4 Reimagined Industrial Policy .................................................................................................................44 2 Competition In The Digital Economy • Last updated 7 September 2020 Competition Commission South Africa • www.compcom.co.za 3 Table 1: Key indicators of digital connectivity in BRICS countries Brazil Russia India China South Africa Population 211.8 million 145.9 million 1.3 billion 1.4 billion 58.9 million EXECUTIVE SUMMARY Mobile phone connections 205.8 million 237.6 million 1.06 billion 1.6 billion 103.5 million Internet penetration 71% 81% 50% 59% 62% Active social media users 66% 48% 29% 72% 37% Growth in internet penetration in one year +6% -0.4% +23% +3.1% +3.1% Growth in active social media users in +8.2% 0% +48% +1.5% +19% one year RATIONALE FOR THIS PAPER South Africa’s financial technology platforms are numerous start-ups in the broader financial payments dominated by the big four banks with Capitec, Tyme space that are simultaneously disrupting and enhancing Bank and Discovery Bank increasing their presence by South Africa’s financial service offering. The arrival and rapid rise of the digital economy The need for intentional regulation has become all the introducing innovative lifestyle solutions. There are also presents South Africa with an opportunity to reverse the more urgent with the advent of COVID19 which is set to pervasive, triple scourge of unemployment, inequality move more products and services online at a rapid pace. and poverty. But in order to harness the promised This paper sets out the ways in which South Africa’s COMPETITION ISSUES IN THE DIGITAL ECONOMY benefits of digitalisation South Africa must create a competition laws can be implemented to achieve AND THE COMMISSION’S APPROACH commercial and regulatory environment designed to equitable outcomes in the digital economy and the extract those benefits and distribute them in a way that Competition Commission’s intentions in this regard. ensures inclusive economic growth, that is (1) increased There are novel features of the digital economy that shape Merger control Since competition policy alone is insufficient to attain the and meaningful employment; (2) equality; and (3) shared interventions in digital markets and lead competition goals South Africa desires, this paper also sets out the South Africa’s history in assessing mergers in the digital prosperity. practitioners to approach competition regulation in the economy suggests that until the MIH/WeBuyCars merger features of the regulatory environment required in order digital economy with a different mindset than we would was prohibited, there may have been under enforcement Unfortunately, for all its promise, the digital economy to extract maximum benefit from the digital economy. the traditional economy. These features are: in developing countries already threatens a new An enabling regulatory environment – including sound in this area. This can be seen in the Commission’s statistics era of global concentration and, with it, the further competition policy – along with a vigilant, informed 1. the rapid and responsive innovation present in which show that of the 87 mergers in digital markets marginalisation of vulnerable countries and businesses. consumer base, innovative business culture, and willing digital markets which are also the desired outcome notified between 2011 and 2018, 82 were approved Therefore, intentional regulation is required to avoid commercial partners can turn the tide in South Africa and of competition policy. Regulatory interventions, without conditions and the remaining 5 were approved outcomes that could harm the development of small ensure that the digital economy delivers on the
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