Monday, 27 May 2019 01:49

Digital ‘giants’ buy-up of start-ups poses challenges for merger laws, says ACCC chair Featured

By
Rod Sims, ACCC chairman Rod Sims, ACCC chairman

Competition regulators world-wide are grappling with the rise of dominant digital platforms like Facebook and Google, and are debating whether current competition laws need to be reframed in response, the chair of Australia’s competition regulator, the ACCC, Rod Sims, has said.

Sims, who heads the Australian Competition and Consumer Commission, said in a speech on Friday that "a global discussion among anti-trust authorities on how should they respond to acquisitions by big digital platforms of start-ups, while small, may evolve into significant competitors”.

At the 2019 Competition Law Conference in Sydney, Sims said Google and Facebook had commercial incentives to strategically acquire nascent firms, even if the chance of those firms ultimately posing a competitive threat was small.

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

Over the past 12 years, Facebook acquired 66 companies for US$23 billion, Sims noted, adding that between 2004 and 2014, Google acquired 145 companies for US$23 billion.

Sims said one question being posed was whether the forward-looking test for proposed mergers, which questioned if a transaction would substantially lessen competition, remained adequate in these circumstances.

“The challenges involved for competition authorities in dealing with such issues should not be understated, he said.

“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.”

Sims said 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 Treasurer on 30 June.

In his speech, Sims also addressed the current debate about whether the objectives of competition law should be broadened “to include issues like consumer privacy, economic inequality and even political influence”.

“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,” Sims said.

“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.”

On two recent competition law matters, Sims said the ACCC was considering its options in response to the recent Pacific National-Aurizon judgment, in which the Federal Court allowed PN to acquire Aurizon’s Acacia Ridge Terminal on the basis of a behavioural undertaking offered by PN.

“The failings of behavioural undertakings are recognised globally,” Sims said.

“In the mobile services sector, where the ACCC recently decided to oppose the merger of TPG and Vodafone, overseas examples have demonstrated that markets with four competitors often 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 the TPG-Vodafone, 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.”

Sims said rational pricing should not be confused 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,” he said. 

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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