Online platforms in a lockdown economy—an Asean market experience

Guiyab —CONTRIBUTED PHOTOS

Perhaps nothing was more emblematic of the sudden onset of COVID-19 than the earliest days. People crowded the supermarkets, trying to obtain as much of their daily necessities as they could get their hands on. People purchased supply good for a couple of weeks, perhaps optimistically believing the lockdowns to come would only last that long.

With the onslaught of the COVID-19 pandemic, the Philippines was forced to impose one of the longest lockdowns in the world. These lockdowns had crippling effects over commerce, leaving the economy and the micro, small and medium enterprises (MSMEs) at a loss. The consuming public was hit with a myriad of limitation: only a fixed number could go to stores, supply chains were snarled and everyday essentials that we had taken for granted suddenly became precious enough to be traded online in newly formed barter groups.

Considering the limit on options, e-commerce experienced a sudden growth boost during this period, encouraging new opportunities for emerging markets. This was mainly driven by the fact that new consumers—those who would never have considered transacting electronically prepandemic—were now exploring the electronic e-commerce space for the very first time. According to data from the E-Conomy SEA Report by Google and Temasek, 37 percent of all digital service consumers during this period were new customers, with a staggering 95 percent of these new users stating that they intend to continue their behavior postpandemic.

Many individuals found themselves at home and with enough free time to enter into new hobbies, resulting in various home-based industries such as cooking or home-based crafts popping up seemingly overnight. The market, now steadily adjusting to the influx of new participants, shifted to one where platforms have become the new marketplace. Digital platforms served as avenues for new businesses, replacing traditional shopping malls. Digital platforms like Shopee and Lazada are then placed with great market power over traditional MSMEs which, because of the COVID-19 pandemic, were constrained to go digital.

Ultimately, at least in the Philippines, the triad of social media platforms, small parcel logistics apps (such as Grab or Lalamove) and fintech players became the “gatekeepers” (to borrow a term from the European Union or EU’s proposed Digital Markets Act) of this new economy.

However, despite these developments, the informal economy remained unregulated. The Philippines does not have concrete rules on competition on digital platform as such.

Evolving regulations

At present, there are different government agencies that have some form of regulation about certain applicable laws. For instance, the Philippine Competition Commission addresses competition issues as mandated by the Philippine Competition Act; and the Department of Trade and Industry uses the Consumer Act of the Philippines as its guideline in addressing violations, among others.

Considering this, an analysis of competition laws from more advanced jurisdictions like the EU, United Kingdom, Japan and South Korea may reveal some regulatory trends as guidelines for local competition legislation. The EU proposed the Digital Markets Act which imposes penalties on breach by large digital platforms, classified as gatekeepers, and the Digital Services Act, which oversees online user content.

Meanwhile, the United Kingdom created a Digital Markets Unit with the power to designate firms as having strategic market status based on an analysis of a company’s market power and ability to cause anti-competitive harm.

Japan, on the other hand, regulates specified digital platforms based on a company’s total domestic sale.

Rapal

Finally, South Korea has enacted a law which is a first of its kind in prohibiting app store owners from forcing developers to use in-house payment systems.

Potential abuse of competition by these digital platforms is an area of concern to foster the promotion of product innovation and safeguard consumer control. We have seen how the market has steadily moved into these spaces owing to both their reach and accessibility. Now, the question remains: how are we going to keep these platform spaces accessible to everyone without largely ceding that decision to major platforms themselves and their allied industries?

Checking the platforms

A look into the Philippine digital platform would show that it may be classified either as the formal or informal sector. Those that belong to the formal sector are more compliant with regulation as they need to submit permits and employ the use of invoices. Meanwhile, entities in the informal sector are not so compliant, capitalizing on how easy they are to be set up.

Another difference may be seen based on customer interaction. While both sectors maintain store pages, the formal sector uses verification softwares, account creation and third-party mechanisms. The websites are operational at any time of the day with minimal to no personal interactions. This is as opposed to the informal sector that heavily relies on trust and requires in-person meetups. Additionally, for payment, the formal sector makes use of electronic and cashless payments while those in the informal sector rely on cash-based transactions.

To address these issues, regulation over digital platforms—whether they cover the formal or informal economy—must be holistic. First, the approach must be to avoid targeting specific problem sectors without considering effects on the other parts of the platform.

Second, financial inclusion should be factored in by adopting cashless payments and promoting access to credit products in order to encourage the shift of participants from the informal sector to the formal sector of the digital platform economy.

Finally, the proprietary interests or the goodwill in the virtual realm of those who form part of the informal economy must be protected. It cannot be denied that current platforms, especially those in social media, have unbridled discretion in imposing their system for standards of approval in their community. This ultimately places them in a dominant position as they have the power to deny entry of participants based on their own discretion.

Notably, platforms are known to keep their criteria for approved content ambiguous in order to prevent willful evasion and circumvention. However, this can easily be a double-edged sword and these standards must be regulated to ensure that they are being applied equitably and in a nondiscriminatory manner. Clearly, much needs to be done but the identification of these key issues will lead to a better competitive environment in the local digital economy to promote product innovation, better choices and options for Filipino consumers. —CONTRIBUTED INQ

These are excerpts from the essay of the same title that won the Asean Australia New Zealand Free Trade Area Competition Law Essay Contest. The winners were presented on Dec. 9 at the ninth Asean Competition Conference. The authors, Guiyab and Rapal, are both young lawyers from the Ateneo de Manila University School of Law, who passed the Philippine Bar in 2017 and 2019, respectively.