ACCC ponders merger law revamp to stay relevant in the digital era

The watchdog has highlighted challenges in implementing merger law in situations where tech giants are scooping up startups and potentially closing room for competition.

Australian Competition and Consumer Commission (ACCC) Chair Rod Sims has said he is not certain that the existing process of ensuring competition is adequate for the digital era, highlighting a challenge in implementing merger law where the full capability of an acquired startup is not yet known.

Putting the acquisition behaviours of the tech giants under the microscope, Sims on Saturday said it is the ACCC's position that Google and Facebook have commercial incentives to strategically acquire nascent firms even if the chance of such firms posing a competitive threat is small.

"Arguably, Facebook's acquisition of Instagram eliminated the threat of a substantial potential competitor," he said, pointing to Facebook having acquired 66 companies for a value of $23 billion over a 12-year period, and Google during 2004-14 scooping up 145 companies for a value of $23 billion.

While the Competition and Consumer Act prohibits mergers that would have the effect, or be likely to have the effect, of substantially lessening competition in a market, Sims said this test may not be sufficient in capturing acquisitions where the likelihood of a lessening of competition may be low or uncertain.

"Some have argued that preventing large digital platforms acquiring small startups interferes with the incentives to innovate in the first instance. This perspective appears to be based on a view that large digital platforms are uniquely placed to develop and monetise the innovations of small startups," he told the 2019 Competition Law Conference in Sydney.

"In my view, merger law should focus on whether the acquisition interferes with the competitive process and recognise that the process of competition for the market is not the same as the process of competition within the market."

Pondering the potential for overworking the existing framework, Sims said widening the objectives of competition law is likely to reduce its effectiveness, noting "If we try to get competition law to achieve everything it may end up achieving nothing".

"That would be a tragedy given the vital role competition law plays in our market economy," he said.

SEE ALSO: Why technology alone won't save us from fake news (TechRepublic)

The ACCC recently put its spotlight on Google and Facebook, determining in December that the substantial market power of the two companies called into question the validity of information that is available and shared on their respective platforms, among other things.

In launching the Digital Platforms Inquiry Preliminary Report [PDF], Sims said the world has found itself in a position where such market power is held by a handful of entities, and that they need to be held accountable and placed under the microscope for additional scrutiny.

According to the ACCC, approximately 19 million Australians use Google; 17 million access Facebook; 17 million watch Google-owned YouTube; and 11 million access Facebook-owned Instagram each month.

In its inquiry, the ACCC is examining a range of issues in addition to the market power held by major digital platforms, such as the impact of digital platforms on media and advertising, the risk of under-provision of public interest journalism, the regulation of media and competitive neutrality with digital platforms, and consumer control over the use of data, and privacy.

On the use of data and privacy, in particular, what digital platforms tell users about the data they collect and use and the clarity with which they communicate this, Sims on Saturday said that this one issue has a consumer dimension, a privacy dimension, and a competition dimension.

From a consumer perspective, Sims said a question is whether consumers are being misled about the use of their personal data and are making informed choices to use the services offered by the platform, while from a privacy perspective, another question is whether data protection rules adequately ensure that consumers are aware of the personal information that is collected and have the ability to object to that.

Lastly, from a competition perspective, Sims said it raises a different question about whether smaller platforms are able to distinguish their offers based on the information they collect and use and compete effectively with large digital platforms on that basis.

"Competition between digital platforms is based on a number of attributes of the services they offer and, while consumers have different privacy preferences, for many an important part of the offering is how digital platforms collect and use data," he explained.

"Increasing consumer awareness of data practices will increase competition based on the privacy attributes of digital platforms' services and, therefore, the more attention digital platforms will pay to respect and protect that privacy."

Sims also used his address to discuss mergers and acquisitions locally, specifically the one the ACCC blocked between TPG and Vodafone earlier this month, saying removing TPG as an independent player, with its customer base, backhaul infrastructure, and spectrum, would have a very negative impact on Australian consumers.

The ACCC is due to submit its report on its Digital Platforms Inquiry to the Treasurer on 30 June.

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