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The rise of the digital economy has forced competition authorities around the world to question whether features of digital markets necessitate a more nuanced approach to competition regulation. In recently published analysis called Competition in the Digital Economy, Baker McKenzie competition law experts look at this from an African perspective. They discuss how this dynamic evolution of markets presents an opportunity to drive structural transformation and development, as market participants integrate to reach consumers and suppliers that would otherwise be inaccessible. To achieve this, competition authorities must balance the importance of upholding the regulatory process with the promotion of innovation and investment.

In Depth

In recently published analysis Competition in the Digital Economy, Baker McKenzie competition law experts identified common themes related to merger control, abuse of dominance and cartel conduct in Africa, that point to the nexus between competition regulation and the digital economy.

Merger control

  • The effectiveness of merger control as a means of furthering competition policy objectives is largely dependent on the competition authorities’ ability to avoid two types of errors – false positives and false negatives.
  • Merger thresholds – an unexpected consequence of the use of financial merger thresholds is that mergers with meaningful effects in the digital markets may, in certain circumstances, fall below the relevant thresholds, with the result that they escape scrutiny by the competition authorities. As such, the traditional method of merger “screening” may need to be reconsidered and replaced.
  • Killer acquisitions – Africa has the fastest growing tech start-up ecosystem in the world and going forward, competition authorities will likely pay close attention to determining and distinguishing between pro-competitive acquisitions intended to expand or improve product offerings from those that have the object of eliminating competition.

Abuse of dominance

  • Competition authorities have identified conduct that, if undertaken by dominant firms, may result in harm to competition. The issue is whether existing theories of harm apply to digital markets or whether new theories of harm should be considered. It is also not clear how certain abusive conduct arising in digital markets will be assessed.
  • Self-preferencing – Competition authorities have identified self-preferencing as potentially harmful competitive conduct that has the effect of entrenching dominance and excluding competitors.
  • Acquisition of data – the ability to acquire, process and analyze large volumes of data gives dominant firms a comparative advantage in the digital market. As such, competition authorities are concerned that firms may look to exploit user data to exclude rivals.
  • Use of algorithms – there is growing concern that algorithms can result in exclusionary anti-competitive conduct and consumer harm. Due to their complexity, it is not clear how anti-competitive algorithms can be detected or assessed within the existing framework.

Cartel conduct

Due to the complex nature of the digital economy, cartel conduct is harder to detect in digital markets when compared to traditional markets, and there is no proven method or tool for the detection of anti-competitive cartel conduct that could potentially arise through the use of algorithms.

The convergence of competition and social policy

Governments in Africa and around the world have decisively shifted away from the purely economics-based origins of competition regulation, turning instead towards a model that acknowledges and, to an extent, caters for the broader needs of modern society.

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Author

Lerisha Naidu is a partner in Baker McKenzie's Antitrust & Competition Practice Group in Johannesburg. She advises and represents international and domestic clients in mergers and acquisitions, prohibited practices (including cartel-related matters), and compliance and risk mitigation.

Author

Angelo Tzarevski is a senior associate in Baker McKenzie's Antitrust & Competition Practice Group in Johannesburg. He advises clients on a broad spectrum of competition issues related to mergers and acquisitions, enforcement, and compliance in South Africa as well as in other African jurisdictions.

Author

Sphesihle Nxumalo is an Associate in Baker McKenzie's Johannesburg office.

Author

Zareenah Rasool is a Candidate Attorney in Baker McKenzie Johannesburg office.

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