ACCC eyes merger challenges for digital platforms
- 27 May, 2019 13:45
Digital giants like Google and Facebook that pro-actively buy up startups poses significant challenges for merger laws, according to Australian Competition and Consumer Commission (ACCC) chairman, Rod Sims.
Speaking at the 2019 Competition Law Conference in Sydney this past weekend, Sims said regulating digital platform mergers is a global problem. And competition watchdogs worldwide are grappling with how to respond when large digital platforms take out startups which, while small at the time, may eventually evolve into significant competitors.
Large players with deep pockets are able to acquire nascent businesses before they can potentially become a competitive threat. The issue of concern to regulators is how it challenges the conventional forward-looking test for proposed mergers, which assesses if a transaction would substantially lessen competition.
“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,” Sims said.
In his speech, he noted Section 50 of 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. ‘Likely to have the effect’ has been interpreted by the Federal Court as meaning there is a ‘real chance’ the proposed merger will have that effect.
"The question is whether this is sufficient to capture acquisitions where the likelihood of a lessening of competition may be low or uncertain, but if the acquisition does lessen competition, the lessening is likely to be very substantial indeed. This question must interest all those with an interest in anti-trust," Sims continued.
“If the prospect that the target will become an effective competitor is small, but the potential increase in competition and consumer welfare is large, greater weight should be put on the potential for competition.”
Over the past 12 years, Facebook has acquired 66 companies for a value of US$23 billion, while Google acquired 145 companies for a value of US$23 billion between 2004 and 2014.
Launch of digital platforms inquiry
The latest speech comes off the back of the ACCC's ongoing inquiry into digital platforms including Facebook, Google and others. The consumer watchdog is charged with analysing the effect on competition in media and advertising services markets of search engines, social media platforms and online content aggregation platforms.
The ACCC’s remit was broad and far reaching, and aims to analyse the effect of new online platforms on competition in media and advertising. When the inquiry was launched at the end of 2017, Sims said the organisation went into it with an open mind, but wanted to understand the influence of digital platforms in Australia.
“We will examine whether platforms are exercising market power in commercial dealings to the detriment of consumers, media content creators and advertisers,” he said. “We will also consider the impact of information asymmetry between digital platform providers and advertisers and consumers.”
The ACCC released preliminary findings in a report in December last year. Not surprisingly, it found Google dominates online search, search advertising and news referral, while Facebook enjoyed market power in social media, display advertising and online news referral. The report expressed concern dominant online platforms can potentially favour businesses it has relationships with through algorithms that boost rankings and advertising and news visibility in a way that lacks transparency to advertisers and news organisations.
“Organisations like Google and Facebook are more than mere distributors or pure intermediaries in the supply of news in Australia; they increasingly perform similar functions as media businesses like selecting, curating and ranking content. Yet, digital platforms face less regulation than many media businesses,” said Sims.
The ACCC outlined 11 recommendations and eight areas it nominated for further analysis in its preliminary report. These include a proposal that digital platforms ‘badging’ media content produced by an accountable media business; options to fund news and journalism such as tax deductions or subsidies; a digital platforms ombudsman to investigate complaints and resolve disputes; and a proposal for digital platforms to allow consumers to opt out of targeted advertising.
The watchdog also flagged changes to copyright and take-down orders; a review of existing, disparate media regulations; a new or existing regulatory authority to monitor online display advertising and news content ranking; and ways to strengthen merger laws.
“Australian law does not prohibit a business from possessing significant market power or using its efficiencies or skills to ‘out compete’ its rivals. But when their dominant position is at risk of creating competitive or consumer harm, governments should stay ahead of the game and act to protect consumers and businesses through regulation,” the report stated.
The ACCC will provide its views on the importance of potential competition in the final report of its Digital Platforms Inquiry, to be provided to the Government at the end of June.