Malaysia Competition Commission (MyCC): A Market Review on the Digital Economy Ecosystem under the Competition Act 2010.

This sub-sector is dominated by two major players, Android and Apple, who control the entire supply chain from device manufacturers and operating systems (“OS”) to app stores, app developers, and end users. They customise their OS to fit their own ecosystems, allowing them to tightly control app development, distribution, payments and competition. The review identified six key issues linked to their dominance and grouped into three categories. 

1. High entry barriers: (Competition-related)  New players struggle to enter the market due to indirect network effects, high development costs, economies of scale of incumbents, and strong customer loyalty. 
2. Limitations on app developers: (Competition-related)  The two largest mobile OS providers holding most of the control, developers often face restrictions in accessing device features during development and distribution. 
3. Restrictive payment systems: (Competition-related)  Apps are often required to use mandatory in-app payment systems owned by the platform that charge transaction fees ranging from 15% to 30%.  
4. Self-preferencing: (Competition-related)  OS developers develop and promote their own apps which give them advantage over third-party apps.
5. Lack of regulatory framework: (Regulatory-related)  The absence of specific regulatory framework for mobile operating systems allows the imbalance practices to continue unchecked.
6. Operational challenges: (Market-related)  App developers experience a lack of transparency and consistency in app review processes, ranking algorithms, and operational requirements. 

This sub-sector involves three main parties namely merchants, marketplaces, and logistics providers. The supply chain flows from merchants to marketplaces or e-commerce enablers, then to logistics players, and finally to customers. It is clear that selected marketplaces have end-to-end supply chain control by having their own integrated logistics arm, monopolising the market and thus making it difficult for other players to compete. The review identified eleven key issues and grouped them into three categories. 

1. Self-preference through data: (Competition-related) Marketplaces use their access to consumer data to favour their own brands or partner merchants. 
2. Limited delivery options: (Competition-related) Customers are often restricted to the marketplace’s integrated logistics services. 
3. Lack of enforceable e-commerce law: (Regulatory-related) The reliance on non-binding instruments in this sub-sector often enable the companies to freely disregard them without consequence. 
4. Opaque ranking algorithms: (Market-related) Marketplaces often use proprietary algorithms to determine product rankings. This lack of transparency disadvantages smaller merchants.
5. Preferential treatment for large merchants: (Market-related) While larger sellers enjoy lower commission rates, better visibility, and dedicated account management, smaller merchants are pressured to purchase advertisement to remain competitive. 
6. Operational pressure: (Market-related) Other operational challenges include short timeframes for implementing policy changes, auto-enrolment in promotional programs, and strict delivery timelines.  
7. No formal online dispute channels: (Market-related) Merchants can only rely on the marketplace’s internal complaint system. 
8. Barriers in East Malaysia: (Market-related) Higher logistics costs and longer registration processes create additional challenges to merchants in East Malaysia. 
9. Delivery partner non-compliance: (Market-related) Some logistics partners purposely delay parcel scans to avoid penalties for late shipments. 
10. Unrealistic logistics KPIs: (Market-related) Marketplaces impose performance targets while controlling parcel volume allocation. 
11. Below-floor logistics pricing: (Market-related) Some logistics players, particularly the new ones, offer rates below market average and Malaysian Communications and Multimedia Commission’s (“MCMC”) recommended floor rate to gain market share. 

The digital advertising ecosystem in Malaysia involves complex relationships between the digital advertising supply chain. The most popular approach is still direct ad buying, particularly for Micro, Small and Medium Enterprises (“MSMEs”) with advertisers securing guaranteed placements and fixed pricing. Advertisers and publishers rely heavily on first, second, and third-party data for data-driven targeting. However, global players lead the market by offering advanced data analytics while local platforms are playing catch up. The review then identified nine key issues and grouped them into two categories. 

1. Vertical integration of incumbent players: (Competition-related) Large platforms have a competitive advantage since they manage several phases of the advertising supply chain. 
2. Horizontal collusion between players: (Competition-related) Concerns regarding agreements between major advertising companies that could lead in preferential treatment and distort competition. 
3. Lack of transparency in advertising mechanisms: (Competition-related) Publishers and advertisers find it challenging to understand how auction results are decided and ad rates are established due to proprietary algorithms.  
4. Potential violation of data privacy: (Competition-related) Platforms gather a lot of user data through complex terms and conditions that prevent consumers from adjusting their privacy settings. 
5. Removal of third-party tracking: (Competition-related) Smaller players face obstacles to entry as a result of the move to ban third-party cookies, which makes them rely more on first-party data. 
6. Limited access to selected advertising inventory: (Competition-related) Platform-owned ad networks frequently have exclusive access to premium ad spaces, which limits the possibilities available to advertisers.  
7. Difficulty in measuring return on investment (“ROI”): (Competition-related) Advertisers find it difficult to assess efficacy due to platform-specific differences in performance indicators. 
8. Lack of comprehensive regulatory framework: (Regulatory-related) Existing codes (e.g., Malaysian Code of Advertising Practice and the Communications & Multimedia Content Code) are not equipped to manage automated bidding and platform-driven ad allocation. 
9. Regulatory disparities between local and foreign players: (Regulatory-related) While overseas platforms function with less restrictions, local advertisers are subject to more stringent licensing, tax, and compliance requirements. 

OTAs act as a key distribution channel for hotel room inventory, alongside wholesalers and metasearch engines. Hotels partner with OTAs through contracts that set commission rates and marketing terms, with large chains paying lower commissions (10–18%) and smaller hotels paying higher rates (17–20%) based on booking volume and location. Major players can increase their reach and possibly self-prefer their listings because they possess both OTAs and metasearch platforms as they offer exclusive website deals and added perks which in turn lessens their need to rely on OTAs. However, OTAs will continue to dominate the industry because of their extensive customer base, marketing strength, and traveller evaluations. The review then identified seven key issues and grouped them into three categories. 

1. Price parity in agreements: (Competition-related) Hotels are restricted from offering lower rates on their own websites compared to OTA platforms, which restricts flexibility and direct booking incentives. 
2. Impact of commission rates on platform visibility: (Competition-related) Hotel rankings on OTAs can be influenced by higher commission payments, while ranking is still unknown. 
3. Self-preferencing in metasearch engines: (Competition-related) When OTA-owned metasearch platforms prioritize their own listings, it may reduce fair competition. 
4. Outdated legal framework: (Regulatory-related) Foreign digital-first OTAs are not covered by the Tourism Industry Act 1992, which exclusively regulates OTAs with a physical presence in Malaysia. 
5. Fragmented regulation of short-term rental accommodations (‘STRAs’): (Regulatory-related) Different local authorities have differing regulations, which leads to ambiguity and enforcement gaps.  
6. Operational challenges for hotels: (Market-related) Hotel operational issues include high and sometimes unpredictable commission rates, overbooking practices, and limited ability to manage misleading or unauthenticated reviews. Communication with OTAs is also often slow and ticket-based. 
7. Drip pricing: (Market-related) During the reservation process, customers are gradually informed of required fees, which results in initial prices that are deceptive.