ACCC raises concerns around online marketplace algorithms, data collection

Fourth Digital Services Platform Inquiry report delves into the world of Australia's big four online retail marketplaces and questions their product recommendations, consumer data practices and resolution processes

Marketshare of the top four online retail marketplaces, from ACCC
Marketshare of the top four online retail marketplaces, from ACCC

A fresh report from the Australian Competition and Consumer Commission (ACCC) into online retail marketplaces has raised a number of concerns around their consumer data collection, recommendation and service practices.

The latest report into four major retail marketplaces – Amazon Australia, Catch Group, eBay and Kogan - is part of the regulatory watchdog’s ongoing Digital Services Platform Inquiry and the fourth report to be released as part of its five-year investigation process. Online marketplaces are defined as facilitating transactions between third-party sellers and consumers within the one platform, and are distinctive to classified ads platforms, such as Gumtree or Facebook Marketplace.

While online marketplaces were perceived as a low-cost way for sellers to enter the market and present consumers with an array of goods, the ACCC raised concerns about their fair and competitive market practices. A big concern is the use of algorithms that decide how products are ranked and displayed. The ACCC noted several hybrid marketplaces gave preference to their own products, while also pointing out all have a high level of control and involvement in transactions between consumers and sellers on their platforms.

These ranking algorithms and other practices can have a significant impact on the purchasing decisions of consumers and be used to provide preferential treatment to the hybrid marketplaces’ own products, the ACCC stated. It’s a concern that’s also gaining ground with regulators overseas.

The collection and use of consumer data was another red flag, with the ACCC highlighting the large amounts of data involved not always aligning with privacy preferences of the expectations of consumers. A third concern was poor dispute resolution processes.

Off the back of this, the ACCC called for more consumer protections to be put in place in the online retail marketplace ecosystem. Notably, it applauded some marketplaces joining the voluntary Product Safety Pledge, providing consumers with additional protections such as commitments to remove listings of unsafe products within two business days.

The ACCC said it also supported a minimum internal dispute resolution requirement for digital platforms as well as an ombudsman scheme to resolve consumer and business complaints. The latter was a recommendation made initially in the Digital Platforms Inquiry report for the whole digital platforms space. Other measures suggested include general safety provisions and making unfair contract terms illegal, along with more transparency and control for consumers over how data is collected and used.  

“Online marketplaces have an important role in connecting Australian consumers and sellers and make up a growing share of consumer sales. But we are concerned about their impact on both consumers and third-party sellers who rely on online marketplaces to reach their customers,” ACCC chair, Gina Cass-Gottlieb, said. 

“Online marketplaces need to be more transparent with consumers and sellers about how they operate. For example, they should explain to consumers and sellers why their search functions and other tools promote some products over others.

“Given the important intermediary role performed by online marketplaces between consumers and sellers, it is also important that marketplaces have protections in place for consumers using their services.”

Unlike the ACCC’s previous digital platform inquiries, such as news media, the online marketplace space does have a variety of players. Yet the watchdog warned of potential for the market to ‘tip’ in favour of a single dominant marketplace. In 2020-2021, Amazon Australia, Catch, eBay Australia and Kogan jointly had a total of $8.4 billion worth of spend, an increase of 21 per cent compared to 2019–2020.

The report also noted Amazon Australia’s sales remains significantly lower than eBay Australia’s, and are below those of large Australian online retailers such as Big W, David Jones, Kmart, Myer or Target. Yet while sales through all four leading online marketplaces in Australia are growing, Amazon Australia’s sales are growing faster than the pack.

Cass-Gottlieb said the ACCC’s fifth Digital Platform Services Inquiry report is now considering whether Australia needs a new regulatory framework to address competition and consumer concerns with digital platform services more broadly. The request for feedback on legislative reforms, rules, codes of conduct and access regimes commenced in February.

“Any such framework should be able to be applied to an online marketplace if it reaches a position where it is could exercise a certain level of market power or, potentially, act as a gatekeeper between businesses and consumers,” she added.

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