ZAKHELE MTHEMBU: Competition Commission is killing the golden goose

The Competition Commission’s final report on the Online Intermediation Platforms Market Inquiry makes it clear that the destructive regulatory interference for which the commission has become notorious is set to continue.

The sector being targeted by inquiry is e-commerce — one of the shining lights of the global and SA economies. “Targeted” is the correct word because the preliminary recommendations of the inquiry, released in 2022, were essentially to punish successful companies for growing and diversifying.

The e-commerce industry in SA has a projected revenue of $6.3m (about R112m) by 2023, which places it above those of developed nations such as Singapore. That is something to be proud of. 

The Competition Commission, on the other hand, has a skewed analysis of what constitutes a market. Its theory is undergirded by the theoretical fallacy of “perfect competition”. It also uses a misguided methodology to assess ease of entry into a market. Instead of looking at obvious barriers such as regulations and legislation that make doing business in SA so burdensome, the commission obsesses over business advantages that firms acquire voluntarily through market interactions, such as Google’s existing customer base.

The commission then seeks to punish these businesses for having legitimate market advantages. Instead of seeing competition as a process that is constantly unfolding, the commission thinks the market shares that exist at the time of its inquiries will persist forever in the absence of government interference.

“Self-preferencing”, a bugbear of the commission in this market inquiry, is an entirely legitimate exercise of property rights. If a business owner decides to use their own property to benefit themselves; for example, by selling only their own products rather than those of a competitor, how can this be regarded as a bad or illegal activity? After all, encouraging customers to purchase one’s products rather than those of other businesses is the whole point of a market economy!

There is a saying: “Word is bond”, meaning that one is bound by agreements. This binding nature of one’s word is known as a contract, and it is enforceable. A defining feature of a valid contract is that it must be voluntary. We can assume, unless contrary evidence is provided, that operational contracts between Takealot and vendors about price parity clauses (for example), were voluntary. As such those who gave their word by signing them should be bound by contract.

This binding of oneself to one’s word through contract is important for certainty in the commercial world. If businesses can sign contracts but the regulator can come and invalidate them later, would that country be attractive to capital for investment? Of course not. The Competition Commission is therefore undermining SA’s economic prospects with its ambitious and unjust regulatory actions.

The e-commerce sector in SA is forecast to grow at a compound annual rate of 11.9% between now and 2027. The projected growth in 2023 alone is 7.7%. This compares with annual growth projections for the overall SA economy from now to 2025 ranging from 0.5% to a lofty 1.6%, according to the latest edition of the World Bank’s Africa’s Pulse. 

SA’s unemployment rate was 32.9% in the first quarter, and 42.4% according to the expanded definition. It is safe to say we need growth anywhere we can find it, and we should be protecting and celebrating it instead of punishing it as the Competition Commission seeks to do.

Through the commission’s opposition to market (voluntary) prices set in parity clauses, it is arguing for regulated pricing and all the well-documented associated economic problems. The commission seeks to undermine the freedom to run one’s enterprise and provide value — a foundational aspect of the right to pursue a trade with dignity — however they deem fit.

The commission is killing SA’s golden goose by proposing to bar those with property from investing or expanding their businesses through self-preferencing. It must listen to the Reserve Bank’s call for the state and its institutions to avoid regulated prices and overly-regulated markets, as would be the case in the online intermediation platform market should the commission get its way.

What the SA economy urgently needs is markets free from interference and legislative barriers. A market wherein those who cannot satisfy consumers find it difficult to thrive, is a functional market. A big company that is voluntarily patronised is not inherently bad for the economy. The ability of new entrants to enter and compete, be it successfully or unsuccessfully, is what the commission should concern itself with, and nothing more.

Mthembu is a legal researcher at the Free Market Foundation. He writes in his personal capacity.