E-Commerce Competition Enforcement Guide

Australian Competition and Consumer Commission

07 December 2018

Australian Competition and Consumer Commission

The revolution may not be televised, as jazz poet Gil Scott-Heron predicted in 1970, but it will be streamed. Today, everything is. But by whom? And what will the streamers and social media know about us when it is?

Analytics and data mining have changed our lives incalculably, from the way we gather and receive news, to how and where we shop. If competition and consumer regulators such as the Australian Competition and Consumer Commission (the ACCC) are to meet their role in promoting competitive markets and protecting consumers, we need to understand this brave new world.

For the Australian government, that has meant asking the ACCC to undertake the Digital Platforms Inquiry (DPI).

The terms of reference for the inquiry, which was announced in December 2017, includes but is not limited to the following:

  • the extent to which platform service providers are exercising market power in commercial arrangements with the creators of journalism and advertisers;
  • the impact of platform service providers on the level of choice and quality of news and journalism to consumers;
  • the impact of platform service providers on media and advertising markets;
  • the impact of longer-term trends, including innovation and technological change, on competition in media and advertising markets; and
  • the impact of information asymmetry between platform service providers, advertisers and consumers and the effect on competition in media and advertising markets.

The purpose of the DPI is to understand better the way digital platforms operate and the evolving nature of their influence on the supply of news in Australia.

Digital platforms have put in place a very clever business system that has created enormous wealth for the owners of these platforms. In essence, they provide free services in return for receiving a lot of data about their users, which is in turn sold to advertisers to create a revenue stream. The ACCC is, among other things, exploring how digital platforms provide access to media content or search functionality to attract consumers and sell access to these consumers to advertisers. This includes Google, Facebook, Twitter, Snapchat, Instagram and Apple News.

The ACCC is particularly interested in the extent to which digital platforms curate the news and journalism supplied to Australians, the long-term impact of digital platforms, and the ability of traditional media to remain financially viable.

The implications of the inquiry are hard to overstate. Access to data is critical to the ability of media companies and advertisers to compete in the online environment, but in many ways news is one of the most accessible conduits into our lives. By definition, news is ‘new’, meaning that to remain ‘up to date’ it is necessary to check the news constantly, and with each update we are providing further insights into who we are, what we like, who we like and what makes us tick. Each click has value. Consequently, one of the most important issues we must address as regulators is to understand the transaction between consumers who give platforms access to their data and access to the ‘free’ services provided by platforms. Or, to put it another way, the value of our data that pays for ‘free’ services.

Our inquiry will initially focus on four aspects.

First, whether platforms are operating in ways that exclude their competitors, which raises the crucial question of market definition.

Second, do consumers understand the ‘price’ they are paying to use these platforms and are the contracts they are entering into ‘fair’?

Third, do disruptive platforms compete on a level playing field with their more traditional and regulated competitors? This is a common question to ask when disruptors appear in a market; for example, there have been extensive discussions on this in relation to Uber and taxis.

Fourth, what positive and negative externalities are being generated by traditional media on the one hand and digital platforms on the other? What must we most protect and what must we most avoid?

We will be presenting our preliminary report in December 2018 and the final report to the Treasurer in June 2019.

This inquiry is a first in terms of the breadth of its focus on the impact of digital platforms on the media, quality journalism and advertising markets in Australia, but it is not the first inquiry into digital platforms to be held in Australia.

The Senate Select Committee Inquiry into the Future of Public Interest Journalism highlighted the impact of digital platforms on the Australian news media landscape and focused on the viability and quality of public discourse in the age of digital platforms. Its report, presented on 5 February 2018, considered the interaction between digital search engines and social media platforms on the one hand, and traditional news media players on the other.

Our inquiry will also engage fully with the global investigations into digital platforms in the UK, European Commission, Germany, France, the Netherlands, Belgium and Israel.

The issues confronting regulators around the world highlight the need to be proactively aware of the environment in which we operate but, more importantly, to have a regulatory framework built on strong principles.

Australia is fortunate in this regard. A root-and-branch review of Australian competition law was enacted in 2017 with the passage of the Competition and Consumer Amendment (Competition Policy Review) Bill and the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017. These two amendments brought Australian law into line with other jurisdictions. In particular, they updated our laws on concerted practices and exclusionary provisions.

Section 46 of the Competition and Consumer Act 2010 (CCA) now prohibits a firm with a substantial degree of market power from engaging in conduct that has the purpose, effect or likely effect of substantially lessening competition in a market. To competition practitioners, this is an easy concept to gauge, as is the principle that the law is not designed to prohibit a firm from obtaining a substantial degree of market power but is designed to stop a firm from misusing that power. It is really about making sure that everyone has an equal opportunity to compete.

Then we have the competition impact of big data.

Competition issues related to big data are the result of increasingly accurate algorithms which are being refined every day to better understand us as consumers. The aim is to know us better than we know ourselves and therefore be able to predict our actions before we even consider making them. Vastly improved data capture, processing speed and developments in machine learning are reshaping the way our economy functions, creating new industries in data-driven innovation that raise significant competition issues.

Big data is affecting our lives far beyond news. There are significantly broader competition issues. In response, the ACCC is considering cases where algorithms are deployed as a tool to facilitate conduct which may contravene Australian competition law and we have established a specialist team to – among other things – analyse algorithms and their competition implications.

Artificial intelligence has been a recent focus of the OECD Competition Committee, and the ACCC is co-chair of the International Competition Network’s Unilateral Conduct Working Group, which has been focusing on online competition issues for some time. Through this work, we have identified a number of areas where competition issues may arise, the most obvious is the market power of online platforms but traditional competition issues, such as collusion, also remain of enduring concern.

Competition analysts have argued that, in the right market conditions, pricing algorithms may be used to engage more effectively in, and sustain, collusion, whether ‘tacit’ or not, reducing competition but without contravening competition laws. It has been said that a profit-maximising algorithm will work out the oligopolistic pricing game and, being logical and less prone to flights of fancy, stick to it. To further complicate matters, the development of deep learning and artificial intelligence may mean that companies will not necessarily know how, or why, a machine came to a particular conclusion. To this end, it is argued that if similar algorithms are deployed by competing companies, an anticompetitive equilibrium may be achieved without contravening competition laws.

I am confident, however, that our laws, particularly with the addition of the new concerted practices prohibition, but also the new misuse of market power provisions, can deal with either situation if they substantially lessen competition. In particular, companies will not be able to say: ‘It wasn’t me, my robot did it.’


Notes

[1] Rod Sims is the Chair of the Australian Competition and Consumer Commission.

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