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Thank you for inviting me to speak today, and thanks to Chris and Chris for organising this conference, which is a mainstay on the competition calendar.

I have been Chair of the ACCC for nearly eight years. The challenges the ACCC faces today in implementing competition and consumer law are as significant and invigorating as they were when I started in 2011.

Today I will talk about three challenges the ACCC and the broader competition and consumer law community face.

First, I will briefly discuss the growing expectations of what competition and consumer law can achieve.

Second, I will discuss some of the challenges of analysing the competitive effects of conduct of multi-sided platforms.

Third, I will briefly discuss some of the challenges in implementing merger law for digital platforms and our thinking on these matters.

Having done this I will then conclude by making some observations about two recent high-profile proposed acquisitions.  

1. Expectations of what competition and consumer law can achieve

I recently attended the American Bar Association Spring Meeting in Washington DC. It was a great opportunity to engage with regulators, lawyers and economists from around the world who are grappling with many of the same issues we are in Australia.

I learned a lot, and hopefully imparted what our recent experiences, particularly those through our market studies work, have taught us.

I was particularly surprised by the international debate about the objectives of competition law and the role it can play in free-market economies. There is a strong push by some to broaden the objectives of competition law to address issues such as consumer privacy, economic inequality and even political influence. Much of this relates to concerns about increasing concentration or, as Tim Wu has framed it, The Curse of Bigness.

While the aims are admirable, indeed compelling, I do not believe that broadening the objectives of competition law is the best way to promote them.

Widening the objectives of competition law is likely to reduce its effectiveness. 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.

If there are wider objectives to be achieved I cannot see what is wrong with using other public policy tools.

This is no more apparent than in our work in the Digital Platforms Inquiry.

The Terms of Reference for the Inquiry cover a number of areas and extend beyond examining competition issues. For example, the Inquiry was asked to look at the impact of information asymmetry between platform service providers, advertisers and consumers, and the impact on the quality of news to consumers.

The Inquiry has, therefore, examined a broad range of issues including:

  • the market power held by major digital platforms
  • the impact of digital platforms on media and advertising
  • the risk of under-provision of public interest journalism
  • regulation of media and competitive neutrality with digital platforms, and
  • consumer control over the use of data, and privacy.

Competition policy alone cannot, and should not, seek to address all the policy issues the Inquiry has raised. Other public tools are also appropriate, including consumer law.

For example, a key issue raised during the course of the Inquiry is the collection and use of data by digital platforms. In particular, what digital platforms tell users about the data they collect and use and the clarity with which they communicate this.

This one issue alone has a consumer dimension, a privacy dimension and a competition dimension.

From a consumer perspective, one 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.

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.

From a competition perspective, 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.

These questions are inter-related. 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.

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.

However, consumer harm from the lack of clear disclosure about the collection and use of personal information cannot be adequately addressed by reducing impediments to the competition faced by digital platforms. A broader perspective must be brought to bear by considering the effectiveness of consumer protection laws and privacy laws and regulations.

Further, given that data is a critical input in a myriad of markets in the digital economy, privacy protections have an integral role in maintaining the consumer trust necessary to enable businesses to innovate with data, and the continued economic and social benefits that come with this.

A final point. Just as all digital platform issues cannot be addressed by competition law and policy, so digital platform issues cannot be addressed by taking a siloed approach. There is considerable value in bringing together competition law and policy, consumer law and policy and a wider lens covering, for example, privacy and media content policy, as we are doing in our Inquiry.

2. Challenges in analysing the competitive effects of conduct of multi-sided platforms

Investigating and analysing the conduct of multi-sided platforms is a significant part of the ACCC’s competition and consumer enforcement work. I will today comment on some of the things we have learned in investigating the conduct of multi-sided platforms and provide perspectives on why platforms are coming under greater competition and consumer law scrutiny.

What are multi-sided platforms?

Multi-sided platforms provide a platform where distinct user groups interact, and they create value in a number of ways.

Broadcast TV is an attention-based platform. It creates value by offering TV programs consumers are interested in watching and selling the attention of those consumers to advertisers.

Online travel agents such as Expedia or are matching or exchange-based platforms. They create value by matching buyers and sellers of travel booking services.

Payment card schemes, such as Visa, MasterCard and American Express, are transaction-based platforms. They create value by facilitating transactions between consumers and merchants.

The digitisation of commerce has turbocharged the growth of platforms and the value of economic activity they govern. The multi-sided platforms gaining the most attention of anti-trust authorities and policymakers more broadly are Google and Facebook. Google Search and Facebook are also attention-based platforms.

Some of the ACCC’s recent competition and consumer investigations involving multi-sided platforms

An important part of the ACCC’s recent competition and consumer work involves conduct or alleged conduct by multi-sided platforms.

In 2016, we reached agreement with Expedia and to amend price and availability parity clauses in their contracts with Australian hotels and accommodation providers. This followed an investigation by the ACCC after accommodation providers raised a range of concerns, including that these parity clauses were anti-competitive as they prevented hotels from offering better deals on competing online sites.

In August 2018, the ACCC issued proceedings against Trivago alleging it made misleading representations to users concerning the highlighting of particular online travel sites on its comparison website. We allege that Trivago created the impression to users that it highlighted the online travel site that offered the best deal for a hotel room, when in many cases the highlighted site was not the cheapest available but was the site that paid Trivago the largest commission.

Presence of externalities makes multi-sided platforms different

A key characteristic of multi-sided platforms is that the value of the services provided to one group of users depends on the participation of other group(s) of users. For example, the value of advertising on broadcast TV depends on the number of consumers watching TV.

For some platforms these effects go in both directions. The value to a merchant of accepting American Express cards depends on the number of consumers who hold and use the card. The value to consumers of holding an American Express card depends on the number of merchants who accept it.

Economists refer to these effects as cross-side network effects, or indirect network externalities.

For some platforms there are also what economists refer to as same-side network effects, or direct network externalities. These occur where the value of the platform to individual users depends on the number and identity of users from the same group. For example, the value to an individual of using Facebook depends on whether their family and friends also use Facebook.

The presence of these network externalities have a number of implications for markets involving multi-sided platforms.

First, markets can tip. If the network externalities are strong enough, it is possible that one platform may ultimately dominate the market. As a result, rivalry to win customers at the margin is limited. Rivalry to displace the dominant platform can be the major competitive constraint.

Second, pricing by platforms can look unusual. For example, Google Search does not charge a monetary price for users of its search engine despite the significant value that consumers get from using it.

Third, in general, markets involving externalities do not work that well. Even if the markets are competitive, the outcomes may not be socially optimal. This is because market signals and trade-offs are less clear.

These market characteristics draw the attention of anti-trust authorities, as does the vast economic activity that occurs on multi-sided platforms.

The ACCC is no different, except we combine it with consumer law more often than our counterparts overseas do. We often take a deeper look at the conduct of platforms where similar conduct by another business may not receive the same level of scrutiny.

One such case is in merger enforcement. There can be a strong incentive for dominant platforms to acquire potential rivals before they have the opportunity to emerge as a competitive threat. This can weaken an important competitive constraint on multi-sided markets.

Economists have helpful insights into the behaviours of multi-sided platforms, but the use of economic jargon can be confusing

Economists have come up with some delightful terms to describe the characteristics of platforms, including multi-sided platforms, multi-sided markets, network externalities, network effects, direct network effects, same-side network effects, indirect network effects, cross-side network effects, feedback loops, cross subsidies, multi-homing, single-homing and so on.

To non-economists, and even to many economists, these terms can be a barrier to understanding. To make things more challenging, some of these terms refer to the same thing.

While it may be difficult to explain the characteristics of multi-sided platforms without using this language, it is important to say what you mean. For instance, cross-side network effects are at play in Google Search. The more users that search on Google Search, the more valuable it is for businesses to advertise on Google Search.

This simple concept should not be made inaccessible by jargon.

Don’t overcomplicate the analysis

The approach we take in defining markets and assessing the conduct of multi-sided platforms is the same as the approach we take in assessing the conduct of any business.

It is important to come to grips with the characteristics of multi-sided platforms. These characteristics can affect the nature of competition among platforms and the competitive constraints they face.

The key however is to not overcomplicate the analysis. Ultimately, we try to get to the heart of the matter in the most straightforward way.

One thing we have learned is there are risks of getting caught up too early in market definition. The real work should be analysing the likely competitive effects of the conduct.

The competitive constraints affecting the behaviour of multi-sided platforms could come from other platforms that service the same user groups. For example, Visa competes with MasterCard in the supply of payment card services to cardholders and merchants.

The constraints could also come from firms that supply services to one of the user groups. For example, advertising-supported news media companies compete for readers with pure subscription news media companies.

There is a debate about whether one should define a single market for the platform itself or separate markets for the different user groups. For example, do Visa and MasterCard compete in a single market for the supply of payment card services or in separate consumer and merchant markets?

The answer depends on the conduct being analysed. Market definition should clarify the relevant field of rivalry and the potential competitive constraints. It should not disguise them.  

Market definition should also enable the inter-dependent nature of the demands of the users (cross-side network effects) to be considered. In the presence of these effects, the alternatives available to one group of users can constrain the behaviour of the platforms in their dealings with other user groups.

For example, a newspaper considering increasing its cover price needs to think about two reactions. One is the loss of readers resulting from a higher cover price. The second is the loss of advertisers caused by the loss of readers.

While it may be appropriate to define separate markets for the services supplied to the different user groups, the implications of cross-platform network effects must be recognised and included in the analysis.

Example: Approach to market definition regarding Google Search for the Digital Platforms Inquiry

The Terms of Reference for the Digital Platforms Inquiry required the ACCC to, among other issues, investigate the extent to which digital platform providers are exercising market power in commercial dealings with the creators of journalistic content and advertisers.

In the DPI Preliminary Report, we defined three inter-related markets in which Google Search participates:

  • The market for the supply of general search services for consumers;
  • The market for the supply of search advertising services to advertisers; and
  • The market for the supply of news media referral services to news media businesses.

These are our preliminary findings. Assessing the boundaries of these markets involves identifying and assessing the alternatives available to the users of these services.

From a consumer’s perspective, the key issue with search engines is whether specialised search services such as Amazon and Expedia are substitutes for the general search services provided by Google Search. In the Preliminary Report we concluded they are not.

Consumers use specialised search services when seeking very specific information, such as the availability of hotel rooms. Google Search and specialised search engines are alternatives for those types of searches. However, for more general search queries, specialised search engines are not alternatives to Google Search.   

While in our Preliminary Report we defined separate markets for general search services and search advertising services, we recognised the link between the two. The attractiveness of advertising on Google Search depends on the number of consumers Google Search attracts to its platform and the volume of their search activity.

To some degree this ‘protects’ users from the exercise of market power in the general search market. Google has strong commercial incentives to continually update and improve the relevance of its search results to users.

This increases the opportunities it can sell to advertisers.

Competition among platforms can be different

Markets involving multi-sided platforms are often highly concentrated. In Australia, there are two major online real estate classified service providers: and There are three major payment card networks: Visa, MasterCard and American Express.

This is not surprising given the nature and strength of the network effects on these platforms. It is more valuable for vendors to list their properties on websites that attract more potential buyers.

It is more valuable for potential buyers to search on websites where more vendors list their properties.

While many potential buyers search on more than one website and many vendors list on multiple websites, the strength of the network effects has resulted in a concentrated market.

In some cases, platform markets can tip to ‘winner-takes-all’. We believe the market for general search services has tipped in favour of Google Search. For the past decade Google Search’s share of general search queries in Australia has remained over 93 per cent.

Google Search achieved this position by substantially improving the relevance of the search results users receive. This was a step change innovation.

A range of factors can make it difficult for smaller providers to attract users from Google Search.

Google Search does not charge a monetary price to consumers to search. As a result, it is difficult for other search engines such as Bing and DuckDuckGo to use price as a point of difference.

Lack of transparency makes it difficult for emerging search engines to communicate to users how they differ from Google Search, especially in the collection and use of their personal data.

Google Search has used its position to become the default search engine on internet browsers. This is particularly important given the strength of consumer biases towards default options.

Smaller search engines do not have access to the search data available to Google Search. Search behaviour on Google Search enables Google to quickly and continually improve the relevance of its search results to users.

Finally, Google Search has developed a very strong brand reputation that smaller providers are unable to match.

Each of these factors limits the ability of other search engines to attract customers and to take advantage of the network effects available to Google Search. As a result, we have found in our Preliminary Report that other search engines do not impose an effective constraint on Google Search.

Arguably, the major potential constraint on the major digital platforms, such as Google Search and Facebook, is from dynamic competition. That is, from business models that offer consumers something different that is often a ‘step change’ better than what is currently on offer.

Understanding what is going on

Having attained a position of significant dominance, Google and Facebook have strong incentives to retain that position.

It is legitimate for platforms with market power to seek to retain that position by continuing to innovate. It is not legitimate for platforms with market power to seek to retain that position by handicapping or preventing potential rivals from innovating to attract users and customers.

The challenge for competition authorities is to distinguish between the two. As always it depends on the facts.

Some jurisdictions have found that Google has engaged in conduct to protect its dominant position or to extend that position into other markets.

In 2017, the European Commission found Google abused its dominant position in general search services by systematically promoting its own comparison shopping service (Google Shopping) in its search results and demoting the ranking of rival comparison shopping services.

In 2018, the European Commission found that Google’s pre-installation of search and browser apps on Android created a status quo bias towards consumers using Google Search. This strengthened the dominance of Google Search.

Part of the difficulty in assessing the conduct of digital platforms is the opacity of the algorithms they use. While algorithms are an efficient way for digital platforms to process information and organise and prioritise information presented to users, they can introduce ‘biases’ that affect competition in related markets, either intentionally or unintentionally.

The EC Google Shopping matter is a case in point. The ACCC’s allegations against Trivago are also about how it presented information to users.

3. Merger laws and competition for the market

The nature of the competitive process to contest the position of dominant platforms raises some interesting legal and economic issues. There is a growing debate, both in Australia and overseas, as to whether the process of competition for the market is adequately protected by the forward-looking substantial lessening of competition test applied to mergers.

We have examined this issue in our Digital Platforms Inquiry. In our view, Google and Facebook have commercial incentives to strategically acquire nascent firms even if the chance of these firms ultimately posing a competitive threat is small.

Arguably, Facebook’s acquisition of Instagram eliminated the threat of a substantial potential competitor.

Over the past 12 years, Facebook has acquired 66 companies for a value of US$23 billion.

Over the period 2004 to 2014, Google acquired 145 companies for a value of US$23 billion.

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’ that 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.

In commenting on the consideration of the Facebook–Instagram and Google–Waze mergers, the Competition and Markets Authority in the UK noted:

“With the benefit of hindsight, a key challenge posed by such cases in digital markets relates to assessing what may be a small possibility of a large reduction in competition.”[1]

Other competition authorities are also grappling with the challenges of applying merger law under these circumstances which involve removal of a potential competitor. These challenges should not be understated. There are considerable uncertainties about how nascent firms are likely to evolve.

Some have argued that preventing large digital platforms acquiring small start-ups 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 start-ups.

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.

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.

The Digital Competition Expert Panel in the UK led by Jason Furman recommended that a ‘balance of harms’ approach be introduced for assessing mergers under UK competition law. The ‘balance of harms’ approach enables the decision maker to take into account the magnitude of the foregone benefits to competition the target could bring, and the likelihood of these benefits being achieved.

The ACCC will provide its views on these complex issues in its final report on the DPI, which we will provide to the Treasurer on 30 June.

Recent transactions TPG and PN

Finally, I don’t think I can talk about mergers today without mentioning two matters that will have a very significant impact on the Australian economy.

The first is the Pacific National–Aurizon matter. First of all, two pieces of good news on this.

Pacific National originally proposed to acquire the Queensland intrastate intermodal rail operations of Aurizon. Pacific National and Aurizon were the only two rail operators in intermodal rail in Queensland so it raised concerns immediately.

Aurizon announced to the ASX that it would close the business if it was not allowed to sell it to Pacific National, and therefore we should clear it.

We sought an urgent injunction preventing it from closing that business, and we were successful in obtaining that. Aurizon then sold the Queensland operations to Linfox.

This demonstrates why the ACCC is always sceptical when merger parties tell us the world will end if we do not let a merger proceed. The ACCC’s actions meant we still have two intermodal rail operators in Queensland, and we are pleased to have achieved this outcome.

The other bit of good news is that the Federal Court found that we made out our case in establishing a substantial lessening of competition in relation to Pacific National’s acquisition of the Acacia Ridge rail terminal. Acacia Ridge is a critical piece of rail infrastructure that links the narrow gauge and standard gauge lines, and is near major rail customers.

The Court found that if Pacific National acquired the terminal it would have the ability and incentive to discriminate against a new entrant, and barriers to entry would be heightened.

However, unfortunately, the bad news from our perspective is that the Court accepted that the behavioural undertaking offered by Pacific National was sufficient to address that competitive harm.

We are firmly of the view that a long-term behavioural undertaking to provide access at Acacia Ridge Terminal will not be effective in enabling competition in the supply of intermodal rail services.

An owner or operator has many subtle ways of discriminating against, or damaging, another user of the terminal. Such an undertaking would not be enough to give a would-be entrant sufficient confidence to make the significant investment necessary to actually enter the market.

The failings of behavioural undertakings are recognised globally. I just recently was in Colombia for the International Competition Network annual meeting, where most of the anti-trust regulators get together, and there was a feeling of disbelief among my international colleagues that a court would treat a behavioural commitment as solving the competition problems likely to result from the transaction.

The ACCC is considering its options.

Now, turning to TPG–Vodafone. This was also a topic of much discussion at the International Competition Network. Australia already has a very concentrated mobile services market, with the three network operators, Telstra, Optus and Vodafone. 

TPG has a proven track record of disrupting the telecommunications sector and establishing itself as a successful competitor in fixed broadband services. This has had large benefits for customers.

Removing TPG as an independent player, with its customer base, backhaul infrastructure and spectrum, would, in our view, have a very negative impact on Australian consumers in this increasingly important market. As was much discussed at the ICN meeting, around the world markets with four mobile players result in better outcomes for consumers.

We see this currently playing out overseas in markets as diverse as Canada and France. Indeed, recently the Canadian Competition Bureau has said that mobile wireless pricing is much lower in regions where there are four players; prices are high and stable where there are three players.

In the commentary on this matter, I think there is reflected a belief that the scale or financial strength of a competitor determines their competitiveness. We don’t agree with this. A stable three-player market facing no threats will likely lead to stable and so-called rational pricing.

The prospect of more rational pricing, meaning higher and stable pricing, was warmly anticipated by many analysts when this merger was first announced. Most commentators at that time, therefore, saw the merger as a long-term positive for Telstra and Optus.

Indeed, we should never confuse rational pricing with the consumer interest. Consumers need the benefits of vigorous competition in order to obtain competitive pricing and the innovation that is in their interests.

In this context we need to also recognise that Australians pay more for mobile communication services than many other countries we like to compare ourselves with.

Effective merger control in general is fundamental to a successful market economy. I think there are more debates to come as we reflect on the economic harm associated with concentrated markets.

I look forward to continuing these debates because of our strong belief that making markets work matters for all Australians and the wider economy.

Thank you for your time today.