Market power dynamics and the competitive landscape in South African digital markets

Policy Paper 59

Abstract

The concept of first-mover advantage and market power dynamics in digital markets is increasingly becoming a topical research subject amongst scholars. Available research and empirical studies provide mixed results on whether the first firms to enter an online market derive any sustainable competitive advantage against later entrants and ultimately attain market power. In the case of South Africa, evidence suggests that some firms that were first in entering some of the digital platforms markets have not been the first to reach critical scale. However, the first movers towards critical scale are benefitting from network effects and, in some instances, exploiting their market power and raising barriers to entry and expansion in their respective markets. The evidence further suggests that timely entry and large capital backing are the essential catalysts for firms in digital platforms markets to reach critical scale and attain market power.

In this paper we explore market dynamics and economics of digital platforms in South African digital markets, with specific focus on online property classifieds, food delivery services and e-commerce. The paper seeks to highlight the unique features and dynamics of entry and contestability observed in digital markets from a developing country perspective. The case of South Africa provides useful learnings on the role of large capital backing and timely entry in conferring market power, against the widely understood phenomenon of first-mover advantage in competition theory. This research is imperative in supporting policymakers in their endeavours for tailored regulation.