Despite the fact that many brick and mortar businesses remain, market dominance has recently shifted to the Internet, particularly digital platforms owned by technology behemoths that can offer a variety of goods or services based on consumer preferences obtained through aggressive data-gathering policies (Delgado & Delgado, 2020). While some may view this shift as positive, the known harms, including anti-competitive outcomes, associated with such practices are now widely documented. The dilemma is that the law has been seriously outpaced by technological advances. As a result, online marketplaces tend to be unregulated, or underregulated, especially when it comes to competition.
The lack of adequate regulation and challenges of enforcement can largely be attributed to two phenomena. First, the Internet is a borderless medium. This means that even if regulators could formulate appropriate policies for competition, enforcing them would be difficult as the effects of the (anti)competitive conduct of one firm are not localised. Coupled with the legal principle of territoriality, it would be a daunting task to enforce competition laws in every jurisdiction where anti-competitive behaviour has effects. Second, a combination of strong network effects, substantial economies of scale and scope, low costs, and vertically integrated and conglomerate business models tend to give rise to the rapid growth and monopolistic behaviour of most platforms (see OECD handbook on competition policy in the digital age, 2022).
The question then is whether the position of dominant firms is already so far gone that competition regulation is impossible now or whether it is a little too late to regulate? In trying to answer this question, this blog focuses on dominant platforms and looks at their market share and influence in today’s marketplace. Admittedly, the featured platforms in this piece are Western-run operations. This is not to deliberately ignore other giants such as Weixin, Sina Weibo and Skyrock which may not be as familiar to the average reader but are among a number of other global titans that are just as significant.
Regulating digital economies
To help the Southern African Development Community’s Parliamentary Forum (SADC PF) develop a model law for the digital economy, Research ICT Africa has finished work on a discussion paper and a draft policy framework. The purpose of the framework is to provide a foundation for developing laws, legislation, and regulations for the digital economy in Southern Africa.
As explained in the SADC digital economy discussion paper, one of the main goals of the framework is to help correct the way that opportunities and harms are currently spread out unevenly between and within countries. It does this by advocating for:
- the creation of an environment that allows for more inclusive and equitable value creation with countries; greater legal interoperability and harmonisation in order to increase the scale and scope of investment and make the region more competitive;
- and improved regional cooperation and coordination to represent member states’ interests more effectively in international digital governance.
The framework touches on several areas that need regulating and re-regulating. One of these is competition, particularly competition law. With a digital economy that employs 371.8 million people and generates more than USD 750 billion in annual economic output, competition regulation will be critical if SADC markets are to grow and opportunities are distributed evenly. (See world data.)
A primary lever to regulate developing digital economies is competition law. Competition law is designed to prevent market distortions caused by anti-competitive business practices. However, this position presupposes that there is competition to begin with, which in contemporary digital markets is seldom the case. Economies prosper when markets are competitive. Competition spurs new ideas, raises the quality of goods and services, gives customers more choices, and lowers prices. Markets become stagnant and customers lose out when competition is restricted.
What are dominant platforms?
Within global digital markets, certain service providers are regarded as dominant platforms. They are termed “dominant platforms” because they have become so established that without them or their platform, it would be impossible to carry out any kind of business online. For example, for smartphone applications, there are two main app stores: the Apple App Store and the Google Play Store. When it comes to search engines, Google is the predominant search engine, and when it comes to social media, nothing compares to Meta, which owns Facebook and Instagram and recently TikTok owned by ByteDance. Competition theory and law define “dominance” as a platform’s market share. Current settled case law does not yet define market share thresholds for dominating position. However, in general, a market share of 70 – 80% or higher is indicative of a company’s dominant position. A firm with a market share greater than 50% must demonstrate its lack of market strength, whereas a low market share (40%) may also indicate a lack of market power. (For more on defining dominance see Pentti 2020.)
The problem, though, with dominant platforms as it relates to competition law, is that these companies are no longer exclusively in the business of what they set out to do. Because of their vertical and horizontal integration, they can leverage their success in one market to break into and dominate others. For example, Facebook isn’t just a social media site anymore; it’s also a marketplace; it makes products for virtual reality and the metaverse (Oculus Products); and it offers business tools like data analytics, among others. In addition, when it comes to sharing pictures online, Facebook purchased Instagram, its biggest picture-based competitor. Amazon, on the other hand, went from being an online bookstore to being the largest online marketplace and cloud service host. What is unique about these businesses is that they operate in several markets at once and are probably market leaders in several of them, which is very different from brick-and-mortar businesses that might be market leaders in just one.
In the digital economy, there are more and more calls for these big platforms to be treated as “digital essential facilities” (DEFs), as competition law says they should be. The “essential facilities doctrine” is a legal doctrine that describes a particular type of monopolisation under competition laws. In general, it refers to a type of anti-competitive behaviour in which a firm with market power uses a “bottleneck” in a market to deny competitors entry into the market. So while most dominant platforms, including those mentioned above, do not introduce bottlenecks per se, the extent of their influence coupled with the fact that new or old competitors have to conduct business on a competitor’s terms can be seen as a pseudo-bottleneck.
For example, websites like Facebook, Amazon, and Google Search serve as gatekeepers to the variety of products and services offered on their sites. Using the information they’ve gathered, they may limit access to their platforms, charge for different levels of access, copy the products and services, and generally engage in abusive anti-competitive practices. They might also tell customers to buy their products, which would effectively set the rules for how the market works. For organisations of all sizes, but especially for small and medium-sized enterprises, taking them on can be near impossible. They can also eliminate rivals or prospective threats by either buying them out (like Facebook did with Instagram) or blocking access to their platforms, like Apple did with the App Store when Epic Games decided not to use Apple’s technology for processing payments in their Fortnight game (see Epic Games vs. Apple 2021).
Thus, regulating DEFs is important because these platforms provide infrastructure for others while also directly competing with independent businesses on their platforms. They act as both referees and players in the market, using their control over search engines, e-commerce platforms, app stores, and social media to indirectly shut out competitors.
Is regulation futile?
As was alluded to earlier, the law has seriously been outpaced by technological advancements. However, in addition to competition/antitrust law reform, a number of laws have also mushroomed around the globe to combat dominant platforms. Some have referred to these as “platform laws.” Most of the newer laws are in the European Union and the United States, and they all reflect the current thinking on how to control the power of big tech by addressing self-preferencing, allowing interoperability, and allowing portability across services, or by making sure everyone is treated fairly through methods that encourage competition.
The European Union has just passed the Digital Markets Act, which sets rules for competition and fairness in the digital sector’s markets in general and for corporate users and end users of essential platform services offered by gatekeepers in particular (Recital 7). In the United States, the Augmenting Compatibility and Competition by Enabling Service Switching (ACCESS) Act encourages competition, lowers entry barriers, and lowers switching costs for consumers and businesses online, while the American Innovation and Choice Act (AIC Act) makes it illegal for major platforms to act in ways that are unfair to certain groups. The US Senate has not yet voted on the ACCESS and AIC Acts, though.
Numerous cases have also been brought through antitrust and competition laws as a result of dominant platforms’ actions. The US Department of Justice, one of the primary competition agencies in the States, has filed a lawsuit against Google for links between its search and advertising activities. The Federal Trade Commission, another US agency with competition regulation powers, is investigating Meta for harm to competitors and consumers (see Allyn). In the European Union, the European Commission is currently investigating anti-competitive search, advertising, and data practices involving Google and Facebook. The European Commission has also charged Amazon with antitrust (anti-competitive) violations for conflicts between its roles as marketplace and retailer. While in South Africa, the Competition Commission has provisionally found that Google’s search-engine practices distort competition in the company’s favour following the launch of an online intermediation platforms market inquiry. In addition, the competition authorities of Egypt, Kenya, Mauritius, Nigeria, and South Africa announced a plan for cooperation in the regulation of competition and consumer protection in African digital markets, indicating a recognition that the growth of digital markets presents significant challenges for competition law enforcement and policy in terms of the unique competition issues that arise.
As commendable as the efforts of these African authorities are, they have some responsibility for the current state of the problem. As governments on the African continent have sought rapid economic growth and simple solutions to complex development issues, they have been hesitant to halt the unrestrained advance of innovation, while competition regulators have also been slow to investigate the potential future effects of such advances on competition. Consequently, regulators often lack a solid legal basis for prosecuting competition distortions and have limited themselves to issuing fines for bad behaviour, which tech companies shrug off as the cost of doing business. In the process, they leave the larger structures of the economy unaffected, even though the issues of the current digital paradigm – data monopolisation, social and economic extractivism, and extreme value concentration – have become too obvious to ignore.
So in response to the question of whether it is too late to regulate, the answer is both yes and no. The rise of dominant platforms has clearly outpaced the regulation of competition. It is almost too late to regulate. Competition law requires these dominant platforms to play by competitive rules; but these platforms have grown too big to be in competition with anyone else. So big, in fact, that some of the company names or trademarks have become genericised. For instance, looking anything up online is now referred to as “googling”.
In addition to all the “abuse of dominance” cases that have been brought against these platforms, these businesses have also eliminated competition by buying them out or merging with them. It would appear that these firms have become too big to regulate, at least in the more developed countries. There, traditional competition law remedies (such as requiring merged companies to separate, paying fines for non-competitive behaviour, or amending corporate governance provisions) are out of touch with the reality of just how big and influential these platforms are. Oftentimes, these requirements are simply considered costs of doing business.
While these digital platforms have established themselves in most urban centres across Africa, the vast bulk of the population has yet to make use of them. This presents an opportunity for regulation to minimise further risks and harms as such platforms work to establish themselves in the broader unserviced areas. The proposed recommendations for the draft SADC Digital Economy Governance Framework, which RIA has developed for the SADC PF, include:
- Competition law frameworks and regulations must allow an autonomous authority to analyse data competition challenges, create remedies, and enforce their powers to protect competition in data-driven marketplaces. Competition regulators must also be able to implement these rules.
- Laws must ensure that the competition authority has the power to regulate cross-border data, make inquiries into continental and regional effects, and cooperate with other competition regulators.
- Legal interventions must grant competitors access to the critical infrastructure in order to open up competition.
- Laws should empower authorities regulating digital networks, and competition, to order specific private operators to facilitate interoperability when doing so is necessary for competition, accountability and scrutiny by standards bodies and public authorities.
- Laws should prioritise transparency for dominant platforms to discourage unfair practices, ensure contestability, and to reduce the asymmetry of information and bargaining power between the dominant platforms and the users.
While drafted for SADC, these recommendations are applicable to most developing countries.
Thus, for developing nations, the influence and behaviour of dominant platforms in developed countries should serve as a lesson on how best to regulate them. Competition law alone is not enough to ensure fair competition and equal participation in the digital economy. The use of new platform laws ought to be prioritised and used in conjunction with competition laws, which are also in need of updating to accommodate the emerging trends of platform fragmentation.