One of the most pressing challenges for governments around the world is how to effectively regulate to prevent conduct by large digital platforms such as Google and Facebook which is harmful to competition and to consumers.
In February 2020, the Australian Government directed the ACCC to conduct a five year inquiry into markets for the supply of digital platform services. The Inquiry is examining consumer and competition issues related to digital platforms, including a consideration of whether Australia’s current competition and consumer laws are sufficient to address identified issues.
The ACCC has so far published five interim reports. The fifth report, which was released in November last year, focuses on regulatory reform and provides recommendations on competition and consumer issues identified by the ACCC since 2017, not only in the current Digital Platform Services Inquiry but also in the earlier Digital Advertising Services Inquiry (known as the Ad tech Inquiry) and the ground-breaking Digital Platforms Inquiry.
The ACCC’s most recent interim report, like other reports that the ACCC has issued, notes that the large digital platforms have substantial market power and significant financial resources. For example, as at April 2022, the market value of both Apple and Alphabet (the parent company of Google) each exceeded the total annual gross domestic product of Australia in 2021.
Digital platform markets are typically characterised by one or two firms dominating the market and high barriers to entry and expansion. This means that dominant digital platform firms have the ability and incentive to protect their market power, including through exclusionary conduct and by acquiring potential rivals.
Conduct observed by the ACCC which is interfering with competition includes self-preferencing, tying, exclusivity arrangements, impeding switching, denying interoperability, and withholding access to important hardware, software, and data inputs. The ACCC is also concerned about a lack of transparency, and the ability of digital platforms with market power to degrade the quality of the services they offer, including the terms on which services are provided to business users.
In addition, the ACCC notes the hundreds of acquisitions which have been made by platforms such as Google, Meta, Apple, Microsoft and Amazon, many involving emerging or potential competitors.
Inadequate consumer and small business protections
The ACCC interim report, again, consistent with other reports it has issued since it commenced its Digital Platforms Inquiry in 2017, identifies the following potential harms to users of digital platform services:
- A range of unfair trading practices, including presenting choices to consumers in a manner that exploits consumers’ behavioural biases and undermines consumer choice;
- A significant and sustained increase in scams on digital platforms;
- Harms from inappropriate and fraudulent apps that are made available on app stores;
- The practice of creating, buying and selling fake reviews and otherwise engaging in review manipulation which distorts competition in related markets and undermines trust in digital platforms;
- A lack of avenues for redress and dispute resolution.
New measures to protect consumers
The ACCC concluded that existing Australian competition and consumer laws are not well-suited to addressing the range and scale of consumer and competition harms it has identified in digital platform markets. It recommends legislative reform to better protect consumers and small businesses, and to promote trust and confidence in the digital economy, as follows:
- Economy-wide consumer measures, including a prohibition against unfair trading practices and unfair contract terms (though noting that the recommendations on unfair contract terms have largely already been implemented by the Australian Government).
- Consumer measures specific to digital platforms, including mandating internal and external dispute resolution processes, and obligations on platforms to prevent and remove scams, harmful apps and fake reviews.
- A new competition framework which would subject designated digital platforms to mandatory codes applying to the services they provide.
- Targeted competition obligations for designated digital platforms to be included in the proposed new framework and codes, to address harms such as anti-competitive self-preferencing.
The Treasury Consultation Paper also raises the issue of governance and states that appropriate governance arrangements are critical to any new regulatory framework. It is important that responsibilities are allocated to the correct entities, taking into account their expertise and accountabilities, and that the various aspects of the regulatory process are subject to appropriate oversight.
This raises the interesting issue as to the appropriate division of roles between the ACCC, an industry-specific regulator such as the Australian Communications and Media Authority, and Government Ministers who are accountable to Parliament.
Consistency with international approaches
In the past, Australia has taken world-leading and innovative action in the regulation of digital platforms, through the implementation of the Mandatory News Media Bargaining Code, requiring digital platforms to pay for news content. For the proposed new regulation, the approach ultimately adopted by the Australian Government is more likely to follow international models than break new ground.
The European Union has adopted the Digital Markets Act, which will address competition harms similar to those identified by the ACCC, and the Digital Services Act, to address consumer protection issues. The approach recommended by the ACCC is however based more closely on the proposed UK model, which is intended to include legislation as well as provide flexibility through the introduction of binding conduct requirements and by enabling the UK regulator, the Competition and Markets Authority, to implement pro-competitive interventions, such as mandating interoperability requirements.
Guidance from the US would be helpful, given that most of the dominant global platforms are incorporated there. To date, notwithstanding a plethora of investigations and some enforcement action taken by the Department of Justice and the Federal Trade Commission, there has been no legislation passed by the US Congress to specifically address digital platform competition and consumer harms. As recently as 11 January 2023, President Biden urged the US Congress to find common ground to regulate not only online privacy but also to protect against harmful online content and to foster tech sector competition.
The Treasury Consultation Paper can be found here. Submissions close on 15 February 2023.