draft, economics, market study, South Africa

Online Intermediation Platforms Market Inquiry: Call for Comments

By Jemma Muller & Gina Lodolo / edits by Charl van der Merwe

The South African Competition Commission (SACC) indicated its intent to formally initiate a market inquiry in the Online Intermediation Platforms Market (Inquiry), in terms of section 43B(1)(a) of the Competition Act 89 of 1998 (as amended) (Competition Act).

In terms of the amended Competition Act, the SACC has the power to conduct a market inquiry at any time, “if it has reason to believe that any feature or combination of features of a market or any goods or services impedes, distorts or restricts competition within that market.

The SACC published its draft Terms of Reference (ToR), allowing members of the public until 12 March 2021 to submit their comments on the scope of the Inquiry.

The ToR envisage a limited scope of assessment, to include only online intermediation services and, in particular, eCommerce marketplaces; online classifieds; travel and accommodation aggregators; short term accommodation intermediation; food delivery; app stores (with the notable exclusion of ‘fintech’).

The Inquiry will be focused on both competition and public interest factors and will aim to consider:

  • market features that may hinder competition amongst the platforms themselves;
  • market features that give rise to discriminatory or exploitative treatment of business users; and
  • market features that may negatively impact on the participation of SMEs and/or HDI owned firms

According to the SACC in the ToR, these platforms have been flagged as they have the potential to self-preference and distort markets through algorithms, which is harmful to businesses who rely on these platforms to reach consumers.

The Inquiry follows shortly on the back of the SACC’s “Competition in the Digital Economy” report (Report), which was published for public comment in the final quarter of 2020. In the Report, the SACC specifically identified market inquiries are an effective tool to address market barriers (especially for Small Medium Enterprises (SME) and historically disadvantaged individuals (HDP)) and to address market feature concerns which may lead to reduced competition.

Allied to this, the ToR goes on to state, in support of the Inquiry, that the use of intermediation services can provide a manner of entry into a market for SMEs/ HDPs, but due to the potential distortions of the market, may also discriminate against them. As a result of the COVID-19 pandemic, domestic online business opportunities are vital in ensuring economic recovery as well as inclusive growth of SMEs and HDPs.

The Inquiry will be the first inquiry in terms of the Competition Act as amended. In this regard, the amended Competition Act empowers the SACC to “take action to remedy, mitigate or prevent the adverse effect on competition”.  This includes imposing structural or behavioural remedies.

It is also notable that the standard of assessment for market inquiries is a lower standard that that required in complaint proceedings. The SACC need only find that certain elements of the market may have “adverse effect on competition” (as opposed a substantial lessening of competition).

In light of these facts, firms in the relevant market cannot afford to remain passive participants in market inquiries and, instead, must consider and respond to the inquiry, as a respondent.

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AAT exclusive, agriculture, consumer protection, COVID-19, excessive pricing, Grocery Retail Market Inquiry, South Africa

Healthy foods & price-gouging during Pandemic?

High ginger, garlic and lemon prices have left a sour taste in mouths of South Africans

By Gina Lodolo and Jemma Muller

The exorbitant and rapid increase in prices of ginger, garlic and lemon, that which spans up to 300%, has been the source of much public outcry and regulatory concern over the past few months. The question remains whether the price increases by massive retailers can be justified or whether they should be considered as excessive?

The Consumer and Customer Protection and the National Disaster Regulations and Directions (the “Regulations”), which came into effect in March 2020, were put in place to consider inter alia when a price is excessive.  They empower the South African Competition Commission (“SACC”) and National Consumer Commission (“NCC”) to investigate and prosecute cases of price-gouging.  Contraventions may result in penalties of up to ZAR 1 million or 10% of annual turnover. According to the NCC, price gouging is defined as “an unfair or unreasonable price increase that does not correspond to or is not equivalent to the increase in the cost of providing that good or service.”

The NCC has launched an investigation under the Consumer Protection Act into potential contraventions of the COVID-19 Regulations against major retailers such as Woolworths, Pick ‘n Pay, Shoprite, Spar, Food Lovers market, Cambridge Foods and Boxers Superstores. According to the Regulations, and in terms of section 120(1)(d) of the Consumer Protection Act, a price increase of a goods, including inter alia “basic food and consumer items”, which does not correspond to the increase in cost of supplying such goods, or increases in the net margin or mark-up on the good(s) which exceeds the average margin or mark-up on the said good in the three month period before 1 March 2020 is “unconscionable, unfair, unreasonable and unjust and a supplier is prohibited from effecting such a price increase”.

The preferred tools of the COVID-19 Regulations relating to excessive pricing seem to be predominantly similar to competition policy and its associated institutions. Upon assessing an increase in pricing to determine whether the increase is excessive, the test would be whether the prices were increased due to cost-based increases (such as reduced supply due to an increase in import costs as the domestic currency get weaker) as opposed to price increases only due to a demand increase (such as more consumers buying ginger as an immune booster during the COVID-19 pandemic). When assessing exploitative conduct, it is more likely to establish that there has been an abuse of dominance when a firm is dominant or enjoys great market power.

It has appeared that the trend in the increase of ginger and garlic retail prices is that the allegedly exploitative conduct no longer originates from only one dominant player as such (eg. only Spar) but rather affects shops in the whole of South Africa. The price increases have sparked outrage with consumers who are driving shop-to-shop in an attempt to purchase ginger or garlic at a lower, or somewhat ‘standard’ pre-COVID-19, price.

As stated above, increasing prices will be seen as excessive when the increase is due only to an increase in demand. Retailers have claimed that the increase is not only because of rising demand but also due to an actual decrease in the product supply.  It is therefore pertinent to determine the extent to which the supply has been reduced in relation to the increased demand. This would require a proportionality balance, as shops would have to prove to the competition authorities that the increase of pricing is only due to the decrease in supply. Extortionary pricing above and beyond that would demonstrate an increase of pricing due to the increase of demand, and as such would fall foul of the  Competition Act and the Regulations cited above.

The rising prices in garlic and ginger have been on the SACC’s radar since July 2020, when it concluded a consent agreement with Food Lovers Holdings whereby the retailer agreed to immediately halt excessively pricing its ginger products at one of its stores. Notwithstanding this fact, the subsequent regulation and enforcement of ginger and garlic prices by the SACC under Regulations has become somewhat tricky due to the fact that the products are not considered to be essential products under the COVID-19 Regulations.

The SACC previously found that the increases in prices were largely attributed to the rise in costs experienced by retailers and they found no evidence of price gouging targeted at taking advantage of the constrained mobility of consumers or shortages during the pandemic. What the SACC found to be concerning, however, were the high pre-disaster margins on products such as ginger and garlic, which have largely been maintained throughout the pandemic by retailers raising their prices for the goods as the costs were increasing. Accordingly, as mentioned above, although the SACC did not find evidence of price gouging, it did find possible contraventions of the Consumer Protection Act and as such, referred the potential contraventions to the NCC to investigate further.

A spokesperson for the SACC, Siyabulela Makunga has stated the following:

We also appreciate the changes in demand for garlic and ginger, but it is our view the price of ginger and garlic have [sic] increased astronomically at retailers. We don’t think that the increased demand in ginger justified the price of up to R400 a kilogram…

John Oxenham, an R.S.A. competition lawyer with Primerio Ltd., notes that “the prosecution of the matter demonstrates the respective authorities’ commitment to priority sectors and an unbridled effort to root out any form of price-gouging.”

To conclude, market power of the implicated retailors has likely been increased due to the reduced availability of substitutes for customers as a majority of retailers have introduced a dramatic price increase. The investigation launched by the NCC is, however, a step in the right direction to protect consumers who have been left with very limited choices in the widespread steep increase in price of ginger and garlic.

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COMESA, MergerMania, mergers

MergerMania update: COMESA CCC clears 5 notified mergers

COMESA old flag color

COMESA CCC clears 5 notified mergers

At their July 29, 2015 meeting, COMESA Competition Commissioners Chikankheni, Langa, and Okilangole rendered decisions in five merger cases notified earlier in the spring.  The affected sectors are: Packaging (Nampak), Retail (Steinhoff), Academic Publishing (Springer Verlag), Telecom Towers (Eaton Towers), and Non-Alcoholic Beverages (Coca-Cola).

Ethos/Nampak MER/03/01/2015 SOM/8/2015 Decision/10/2015  29/07/2015
Steinhoff/Pepkor MER/03/02/2015 SOM/7/2015 Decision/9/2015  29/07/2015
Holtzbrinck PG/ Springer Science MER/04/06/2015 SOM/6/2015 Decision/8/2015  29/07/2015
Eaton Towers/ Kenya, Malawi, Uganda Towers MER/04/05/2015 SOM/5/2015 Decision/7/2015 29/07/2015
Coca-Cola BAL/ Coca-Cola SABCO MER/04/07/2015 SOM/4/2015 Decision/6/2015 29/07/2015

Our statistics (while discrepant with those identified by COMESA head of mergers Mr. Willard Mwemba) show the following numbers for COMESA notifications to date:

COMESA MergerMania July 2015

Number of merger notifications based on CCC-published notices

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cartels, collusion, COMESA, East Africa, Extra-judicial Factors, market study, Unfair Competition

COMESA foreshadows first substantive sector study, potential cartel enforcement

Retail antitrust: “mushrooming” shopping malls vs. SMEs, and possible cartel follow-on enforcement on the horizon for CCC

As reported in the Swazi Observer and other news outlets, the COMESA Competition Commission (“CCC”) recently expressed an interest in investigating the effect that larger shopping malls have had on competition in the common market’s retail sector.

This is one of the first non-M&A investigations undertaken by the CCC, according to a review of public sources.  While observers in the competition-law community have witnessed several merger notifications (and clearances) under COMESA jurisdiction, there has been no conduct enforcement by the young CCC to speak of.  Indeed, CCC executive director George Lipimile stated at a conference in November 2014: “Since we commenced operations in January, 2013 the most active provisions of the Regulations has been the merger control provisions.”  Andreas Stargard, an attorney with the boutique Africa consultancy Pr1merio, notes:

“Looking at the relative absence of enforcement against non-merger conduct (such as monopolisation, unilateral exclusionary practices, cartels, information exchanges among competitors or other conduct investigations), this new ‘shopping mall sectoral inquiry‘ may thus mark the first time the CCC has become active in the non-merger arena — a development worth following closely.  Moreover, the head of the CCC also announced future enforcement action against cartels, albeit only those previously uncovered in other jurisdictions such as South Africa, it appears from his prepared remarks.”

The CCC’s interest in the mall sector was revealed during one of the agency’s “regional sensitisation workshops” for business journalists (AAT previously reported on one of them here).  At the event, Lipimile is quoted as follows:

“The little shops in the locations seem to be slowly disappearing because everybody is going into shopping malls. And these shopping malls and the shops in them are mostly owned by foreigners.”

The investigation will take a sampling from the economies of several of the 19 COMESA member states and attempt to determine whether the “mushrooming” growth of shopping malls negatively affects local small and medium enterprises in the whole common market.

Rajeev Hasnah, a Pr1merio consultant, former Commissioner of the CCC and previously Chief Economist & Deputy Executive Director of the Competition Commission of Mauritius, commented that,

“Conducting market studies is one of the functions of the CCC and it is indeed commendable that the institution would contemplate on conducting such a study in the development of shopping malls across the COMESA region.  I believe that this will then enable the institution to correctly identify and appreciate the competition dynamics in the operations of shopping malls and the impact they have on the economy in general.  The study should also identify whether there are areas of concerns where the CCC could initiate investigations to enable competition to flourish to the benefit of businesses, consumers and the economy in general.  We look forward to the undertaking of such a study and its findings.”

AAT agrees with this view and welcomes the notion of the CCC commencing substantive non-merger investigations.  We observe, however, that the initial reported statements on the part of the CCC tend to show that there is the potential for dangerous local protectionist motives to enter into the legal competition analysis.  As Mr. Lipimile stated at the conference:

“Though [the building of malls] might be seen as a good thing, it may negatively impact on our local entrepreneurship and might lead to poverty. Before shopping malls were built, local entrepreneurs realised sales from their products.  Now malls are taking over. … [A] strong competition policy can be an effective tool to promote social inclusion and reduce inequalities as it tends to open up more affordable options for consumers, acting as an automatic stabiliser for prices”

That said, Mr. Lipimile also stated at the same event, quite astutely, that a “solid competition framework provides a catalyst to increase productivity as it generates the right incentives to attract the most efficient firms.”  In the rational view of antitrust law & economics, if — after an objective review such as the study announced by the CCC — the “most efficient” firm happens to be a larger shopping mall that does not otherwise foreclose equally effective competition, then the Darwinian survival of the fittest in a market economy must not be impeded by regulatory intervention.

George Lipimile, CEO, COMESA Competition Commission

George Lipimile, CEO, COMESA Competition Commission

Mr. Lipimile himself seemed to agree in November 2014, when he said that the 19-member COMESA jurisdiction must have regard to “its trading partners [which] go beyond the Common Market hence, it requires consensus building and a balancing act.”  At this time, “when regional integration is occupying the centre stage as one of the key economic strategies and a rallying point for the development of the African continent,” domestic protectionist strategies have no place in antitrust & competition law.  Said Mr. Lipimile: “[R]egional integration can only be realized by supporting a strong competition culture in the Common Market,” which would not support a more reactionary, closed tactic of a regulatory propping-up of “domestic champions” versus more efficient foreign competition.  As the CCC head recognised, “[t]he purpose of competition law is to facilitate competitive markets, so as to promote economic efficiency, thereby generate lower prices, increase choice and economic growth and thus enhance the welfare of the general community.”

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