Uber Eats risks mandatory price slash in South Africa as probe into its market dominance begins
South Africa’s Competition Commission is set to commence its market inquiry into the operations of dominant e-commerce platforms including Uber Eats.
The commission has stated that its investigation, which will start on May 19, is necessary to establish whether there is fair competition among online market players.
Global experience is that a few platforms may start to dominate online commerce given the features of online markets and in some cases the conduct of the markets themselves.Competition Commission
“In those circumstances, businesses using the markets may be exploited or discriminated against and consumers may not be presented with the optimal choices,” the commission says.
Apart from Uber Eats, the probe will be conducted on major e-retailers and B2C platforms involved in the sales of fast-moving consumer goods, services and software. These include Uber Eats competitor Mr D Food, e-commerce giant, Takealot, Airbnb and Travelstart.
The Issue of Market Dominance
In South Africa, a dominant market operator is defined as one with at least 35-45% market share or less but with market power. By market power, it means that such an operator is able to set prices independently of its competitors, customers or suppliers as long as it earns more profit.
Uber Eats qualifies as a dominant player, currently serving over 700,000 active monthly users in the country. Mr D comes closest with more than 500,000 customers.
For restaurants onboarded on to its platform, Uber Eats charges as much as 30% commission, higher than Mr D’s average of 22%. So, food businesses pay more to partner with Uber than any other food delivery platform.
Moreover, Uber Eats has the highest average price of food items ordered online, charging up to $5.19. While this is just a bit higher than Mr D’s $5.11 average price per order, Uber Eats also collects a 5% service fee on each order unlike its biggest competitor.
Other rival food delivery apps such as Orderin operate with a lower average price per order of around $4.28.
Uber Eats may be forced to slash prices
If Uber Eats is deemed to be hindering competition, then it could be forced to slash prices and give competitors access to essential facilities such as dispatch vehicles and delivery boxes.
Such moves will incentivise rival operators by providing more working equipment to meet customer demands in day-to-day operations.
In December last year, the commission told dominant telco operators, MTN and Vodacom to reduce their retail prices by at least 30% and up to 50% within two months.
Uber Eats could face a similar fate. While operators should not be punished for their success, the commission claims it seeks to ensure a fair competitive online market where partner businesses are not exploited.
Therefore, Uber Eats may be directed to review food prices and the commission it charges restaurant partners downwards.
Invariably, these food businesses will pay less to use the platform but Uber Eats might only lose a small percentage of service revenue. This is because the revenue loss from reduced commissions may be offset by increased patronage from customers should the operator lower food prices.
On the whole, Uber Eats would perhaps not agree to dominant market players being forced to make these concessions just to boost competition from rival operators.
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