ACCC Chair Rod Sims addresses the International Competition Network (ICN) Merger Workshop 2020, which the ACCC is hosting for the first time. In this speech, Mr Sims discusses three issues: the vital importance of merger control, what agencies can learn from each other, and particular challenges with the many acquisitions in digital markets.
Check against delivery.
The ACCC is delighted to host the 2020 International Competition Network (ICN) Merger Workshop in Australia. I want to thank all attendees from fellow competition authorities and other delegates from some 45 countries around the world for flying here to be with us here tonight.
We have been a member of the ICN since its early inception and during that time we have seen it go from strength to strength thanks to the involvement of its members, including by attending forums such as this.
The fact that many of you have travelled very long distances to be here only underscores the important role that the ICN plays in merger control. We hope you find the workshop both valuable and enjoyable.
Before I became Chair of the ACCC almost nine years ago, I spent close to 20 years in the private sector. My time spent advising companies on commercial strategy makes me keenly aware that mergers are often motivated by reducing competition to reduce the much harder task of ‘outrunning’ competitors.
On joining the ACCC, you can imagine my surprise at finding that the merger parties approaching the ACCC never have the goal of reducing competition. Instead, it is now all about ‘synergies’.
I quickly became aware of the challenges faced by competition authorities to prevent transactions they consider likely to be anti-competitive. Along with this awareness, I was and continue to be surprised by how little attention is placed on practical corporate strategy issues in antitrust cases when testing the evidence presented.
As we are all aware, proposed mergers can be extremely difficult to challenge. By their nature, cases involve predictions of the future state of competition with the merger. Competition authorities can sometimes feel like they are on the back foot when attempting to meet this challenge. We are seeking evidence about the unknown future world and much of the relevant knowledge and evidence rests with the parties to the transaction.
Previous decisions of the Federal Court of Australia and the Australian Competition Tribunal indicate an added challenge in Australia. This is the considerable weight that is given to the testimony of the merger parties’ senior executives over internal company documents created before the merger which show a different story. My sense is that courts in some other jurisdictions are more sceptical of self-serving testimony by the merger parties.
The challenge outlined above applies to all merger reviews but is even greater when the market environment is rapidly evolving and incumbents are acquiring emerging and innovative new players.
These challenges are at the heart of this year’s ICN Merger Workshop where we are asking ‘how do we achieve the right balance to merger reviews in assessing the future unknowns, often in a changing market environment?’
With such significant change taking place across many markets globally, most notably with the meteoric expansion of large digital platforms, it is important for the merger control community to come together to discuss whether this balance is being achieved and whether our traditional approach is able to meet these challenges into the future.
Events like this, and the ICN more broadly, play an important role in facilitating these important discussions.
Tonight I will briefly discuss three issues; the vital importance of merger control; what we can learn from each other; and the particular challenges with the many acquisitions in digital markets.
1. Getting merger control right is crucial
As we all know, the stakes in merger control are high. Competition is the critical underpinning for a market economy to function as intended. In their policy advice, when economists tout the virtues of free markets, their modelling often assumes that strong, and indeed, perfect competition prevails.
Such economists may focus on the value of Adam Smith’s “invisible hand” without realising that Smith himself was complaining about a lack of competition, and calling for more of it.
My guess, and it can only be that, is that if Adam Smith observed the world today he would believe our economies are now much too concentrated and that we have collectively all failed in our mission. A big call, I realise, but also a challenge to us all.
We should all occasionally step back and ask whether our merger controls are giving us the level of competition needed for a well-functioning market economy.
Merger law is designed to prevent anti-competitive acquisitions before they occur. A merger or acquisition leads to a permanent structural change in the relevant markets. It is about protecting competition and the competitive process, and in that way protecting consumers.
Recently, competition authorities around the world have been challenged on whether our merger laws, and our application of those laws, is adequately achieving these goals. Some argue that high levels of concentration, and an associated increase in economic rents (or profits above those in a competitive market), are responsible for reduced investment and innovation, growing inequality and, according to some, an undermining of democracy.
These are questions that go not only to the health of the economy but also to the type of society that we want. While merger policy is not intended to solve for all these issues, the fact that they are raised suggests that the stakes are high — no pressure!
The evidence of whether our economies are too concentrated, and the consequences of this, can be seen as mixed. The analysis is difficult and value judgements intrude, as they do in all things economic. My judgement is that Australia’s economy is too concentrated.
Regardless of our individual views, I’m sure we can all agree that merger control is important and difficult. And we can always do better by learning from each other.
2. Same same … but different
The aim of merger law around the world is the same.
Importantly, however, there are some subtle, and not so subtle, differences in application, or in practice. This makes for a level of rich diversity in terms of analysis and processes. While many of the differences reflect the underlying regulatory and legal framework operating in a particular jurisdiction, they provide another way for competition authorities to learn from each other.
We at the ACCC actively look to competition authorities in other jurisdictions for ideas as we continue to explore improvements in our system. Some of the key areas of difference that we find particularly interesting include the following.
- The use of other tools beyond the traditional merger tools to challenge anti-competitive mergers, such as in cases involving the acquisition of nascent competitors. Other tools include abuse of dominance or market power provisions, or monopolisation or attempted monopolisation provisions, which the US Federal Trade Commission has recently used in a couple of cases.
- In some jurisdictions, the approach taken by courts is to allow hearings to begin based on the premise that increased concentration will cause a lessening of competition.
- The differing levels of deference given by review bodies in some jurisdictions to the views of the competition authorities, and their merger guidelines, in recognition of their expertise in this area.
- The weight given by the courts to information created after the deal was agreed because of the inherent bias and unreliability of that information.
- The focus in assessments, including Australia, on the very difficult task of determining what is likely to happen to the target company in the future, rather than simply the immediate competitive effects of the acquisition being considered.
When we look to our international counterparts, the Australian system is out of place next to the formal, mandatory and suspensory regimes in many jurisdictions. We assess the vast majority of mergers under a voluntary and informal merger review process.
Parties are not obliged to seek clearance. When they do, the ACCC does not have statutory deadlines. There is significant flexibility in the regime, which has many benefits but also challenges. For example, there is no compulsory upfront information requirements, and transactions are not suspended pending ACCC clearance. This latter point can cause us large problems when companies can threaten to complete the acquisition at various points of our investigation, as sometimes happens.
It is interesting to see the UK considering a move from a voluntary to a compulsory notification system, albeit with high notification thresholds.
Opportunities like this ICN Workshop allow us to explore further the merger control approaches and processes in other countries to assess whether the way we do things in our own jurisdictions is the most appropriate or not.
Indeed, identifying and understanding our differences can assist all of us when we reflect on whether we have the balance right, and whether we are achieving what we are setting out to achieve.
3. Particular challenges for acquisitions in digital markets
The rapid rise of a number of large digital platforms, involving many acquisitions, has caused competition authorities around the world to consider whether our traditional approach to mergers is able to meet the challenges presented by emerging markets.
It is easy to suggest our markets would be more competitive if YouTube and Double Click were separate to Google, and if Instagram and WhatsApp were separate to Facebook. But predicting the future competitive effect of such acquisitions before they occur is extremely difficult. This illustrates the difficulties when you have only nascent competitors, or competitors in related markets.
We can, however, learn from these acquisitions by considering:
- the competitive significance of consumer data and access to multiple data ‘port holes’, which entrenches network effects and creates economies of scope;
- the most likely sources of new entry and the importance of ensuring there remains a competitive constraint provided by new or likely new entry; and
- factors such as the purchase price and a greater focus on pre-existing internal strategy documents.
We can also assist each other in addressing these challenges.
We all suffer from information asymmetry; no one competition authority can know as much about the markets in which the merging businesses operate as the merging businesses themselves, but we can work together to help address that imbalance.
We can share theories of harm, our views on the merger parties’ arguments and potentially critical documents, subject of course to legal restrictions. This is particularly important in the case of transactions involving global firms with complex and far-reaching operations.
Google’s acquisition of Fitbit, which some authorities are currently considering, is a key example where we will all want to watch and learn from each other, and we are seeing clear signs of that already. It is a very important matter.
4. ICN promoting international cooperation
We are fortunate to have attendees from competition authorities here tonight who are just developing their merger regime. I hope this event will help you and your agencies to continue along your development path, which I know has already progressed astonishingly quickly.
I know that from the ACCC’s perspective, despite the large distances and late night phone calls, we have built up great relationships with our international counterparts over the years. Not only has close engagement benefited the ACCC when we look at multijurisdictional mergers but it is also helping us now in looking at our own merger regime and asking if it remains fit for purpose.
Thank you again for being here with us in Australia and for your time tonight.