We find ourselves in unprecedented times with covid-19 continuing to send shockwaves throughout the world. It is driving changes in ways that could not be predicted and one of these changes is the accelerated role of the digital economy in our day to day lives. Due to the strict lockdown rules imposed in most countries, individuals have turned to online platforms to carry out tasks from grocery shopping to virtual boardrooms. While there has already been pressure to understand the dynamics of the digital economy and the implications on markets, from a competition perspective, the urgency has now increased due to the times we find ourselves in.
The benefits of the digital economy for consumers are significant and stretch beyond competitive prices to having a wider product selection and the ability to compare prices and products more easily. This in turn pushes companies to innovate their offering, enhance efficiency, improve product quality, or even disrupt the market with a completely new offering. South Africa has already seen a proliferation of online platforms such as OneCart, Takealot and Checkers Sixty60, along with a huge uptake in users during covid-19. These platforms have positive impacts across the logistics value chain, such as an increased demand for transport and warehousing services. Whereas the benefits of these platforms for consumers and service providers are clear, the resulting implications for market competition, and antitrust law, are complicated. To date, experts have not even been able to find a common and consistent definition of a multi-sided platform (MSP)1.
One of the more prominent concerns is the role of big tech – namely Google, Amazon, Facebook, Apple, & Microsoft (GAFAM) – on market dynamics. Although these organisations are considered pioneers, who entered and disrupted markets through innovation, they are now capturing even larger shares of the market through strategic vertical integration. Competition authorities are beginning to monitor acquisitions to understand if big tech is stifling competition by acquiring companies that could challenge them in the future1. Another major concern is how big tech is using customer data to give them an unfair competitive advantage. This data can be used to run highly complex algorithms which could be used to measure a customer’s willingness to pay for a good and enables companies to price discriminate among customers1. While customers are aware that their data is being accessed and analysed, there is little transparency, and consumers and regulators have limited knowledge and oversight over the actual use of this information.
The digital economy presents an exciting opportunity for new market entrants and greater innovation. These opportunities need to be balanced against the conventional negative impacts of market dominance, vertical integration and monopoly power; as well as the new challenges of big tech and data privacy. Competition and consumer protection agencies will need to design policy and regulations that are able to carefully balance the market power of big tech, the innovation which comes with these platforms, and the benefits to customers and businesses; against the real and emerging concerns around big data.
References
1. Bennett, D.C. 2018. Practical competition policy implications of digital platforms. Bennett Institute for Public Policy. Working Paper no: 01/2018