Efficiency Effects & Design of Remedies – SOUTH AFRICA – December 2019 OECD discussion
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The document discusses the approach of the Competition Commission of South Africa (CCSA) to merger control in dynamic markets, highlighting the significance of considering dynamic competition in the assessment of mergers. Two case studies, Mih (Naspers)/Webuycars and Bayer/Monsanto, illustrate the challenges and factors influencing the competitive landscape, including innovation, rapid market changes, and the emergence of new business models. The CCSA emphasizes the need to evaluate dynamic characteristics to determine the potential impact on competition effectively.
Efficiency Effects & Design of Remedies – SOUTH AFRICA – December 2019 OECD discussion
- 1. Merger control in dynamic markets Submission by the Competition Commission of South Africa to OECD Global Forum on Competition 6 December 2019 Makgale Mohlala
- 2. Outline Introduction: CCSA’s approach to dynamic merger review CCSA Case Study 1: MIH (Naspers)/WeBuyCars CCSA Case Study 2: Bayer/Monsanto 1 2 3
- 3. 3 Introduction 1 This discussion arises from a recognition of the importance of dynamic competition in a growing number of economic sectors There is no set time period. The decision is based on the characteristics and competitive dynamics in a particular market a 2 The CCSA usually takes dynamic effects into account when assessing the level of competition in a market a Section 12A(2)(e) of the Competition Act specifically mandates the CCSA to consider the dynamic characteristics of the market when determining whether a merger will likely result in a substantial prevention or lessening of competition 3 A key practical question that arises is: what is the relevant timeframe of merger review? That is, how far ahead should authorities look to assess the likely effects of a merger? b Key factors considered in this assessment include growth, innovation and product differentiation
- 4. 4 Assessing dynamic effects continued… 4 Typically, the assessment of competitive dynamics looks at the following: • history of entry and exit, • levels of barriers and prospects of entry, • the product and process involved in bringing the product to market, • creation of new markets, • market shares (using metrics such as website traffic in online platforms, and number of wins in bidding markets etc.) • generating candidate theories of harm, and • creeping merger effects In effect, the assessment of dynamics characteristic varies from market to market and from one merger to another. 5 Some challenges arise in applying these tools in fast-evolving sectors: • some of the metrics may change within short periods of time, • continuous innovation means product space changes rapidly and entirely new markets can be created in short space of time, • potential competition comes from unexpected places (e.g. competition to taxi cabs came from platforms, not from other vehicles) • existing business models are constantly disrupted complicating assessment
- 5. 5 Case example 1: MIH/WeBuyCars Background • MIH is part of the largest e-commerce business in SA, Naspers • With purchase of WeBuyCars, MIH intended buying an effectively new form of business: the guaranteed wholesale buying of used cars for cash Acquirer: Related Platforms • Naspers controls several related online platforms in SA: • Autotrader, the largest online automotive classifieds advertising portal for new and used cars, and • OLX, generalist online classified portal, incl. for used cars Dynamics: Potential Entry • Naspers recently acquired Berlin-based company called Frontier Car Group (“FCG”) which specialises in guaranteed wholesale buying and selling of used cars • FCG operates in several emerging countries such as Mexico, Pakistan, Nigeria, Indonesia and the UAE • In other markets, FCG generates leads from cars listed on OLX and converts these to sales • FCG does not operate in South Africa but had intentions to enter and compete head-on against WeBuyCars using the Napsers OLX platform for lead conversion
- 6. 6 MIH/We Buy Cars continued The Target Firm • WeBuyCars is the pioneer of the “guaranteed wholesale purchase of used cars for cash” model in SA • It advertises its stock on Naspers’ online Autotrader platform, along with numerous other traditional used car dealers • WeBuyCars sells its used cars mainly to “traditional” used car dealers. Central debate • Breadth of the used car market in light of the new business model by WeBuyCars • Specifically, do traditional used car dealers sufficiently constrain the new model of ‘guaranteed wholesale buying of used cars for cash’ considering convenience, no need to match a sale etc. • CCSA found that the new model rendered traditional used car dealers non-effective competitors on buying side Recommen- dation Prohibition based on removal of effective competitor and conglomerate effects given complementarity between various Naspers platforms. Matter still being considered by Tribunal.
- 7. 7 Second case example: Bayer/Monsanto • Dynamic considerations often arise in the agricultural sector where firms invest heavily in new seeds and chemicals to adapt to different climatic conditions, new crop diseases etc. • Biotech seeds and agro-chemicals in these markets evolve rapidly, with new products and processes introduced virtually every season. • Changes in cultivars and chemicals may become even more rapid with climate change • Mergers assesses in SA include Bayer/Monsanto which raised several competition concerns as well as challenges relating to designing and coordinating the development of global remedies that address the multi- jurisdictional concerns • The merger presented horizontal overlaps in relation to agrochemicals and genetically modified (GM) cotton seeds where it was virtually a merger to monopoly • Parties ultimately ordered to divest the Bayer cotton business • Globally, the merged entity divested Liberty and Liberty Link trait businesses including the R&D levels of businesses, in order to eliminate the source of market power at the highest level of the value chains.
- 8. Thank You Email Address: ccsa@compcom.co.za Telephone Number: +27 (012) 394-3200 / 3320 Fax Number : +27 (012) 394 0166