Feeds
ACCC defending not efficiency, but the status quo June 14th, 2008
eBay announced yesterday that it going to fight the ACCC over its PayPal ruling.
I’m not big on internet auctions. But I use the secondhand book site Abebooks a lot. It is in many ways similar to eBay - rather than selling goods directly to consumers, Abebooks just acts as an intermediary between book buyers and secondhand book sellers. Like eBay, customers can contact sellers directly if they have questions or need to alter shipping details after the initial sale. And also like eBay, a rating system is used to build reputation, although, considering most sellers are established bookstores, the rating system isn’t as crucial to Abebooks as it is for eBay.
But unlike eBay, Abebooks has always had only one payment method. It has never opened its sales system to competing payment devices. It did mandate in 2006 that all credit card transations were to be processed by Abebooks itself, rather than passed onto the bookstores to process, but it has never offered customers the ability to directly transfer money from their bank account, or to send cheques to the seller.
But it is unlikely that the ACCC is going to pursue Abebooks anytime soon, even though the payment options the book seller offers are more limited than those now being implemented by eBay. (eBay will continue to allow cash payments upon pickup, and the PayPal system allows users to do bank transfers, rather than having to go through a credit card as an intermediary.)
eBay’s mistake was to allow third parties access to their sales system in the first place. The ACCC can only claim that it the auction site is in violation of the Trade Practices Act prohibition on exclusive dealing because eBay has already demonstrated that its sales system can technically be open to other payment devices. If eBay had only ever offered an internal payment device - as Abebooks does - then it would be unlikely that it would attract the regulator’s attention. PayPal is owned by eBay - to what extent should they be treated as seperate companies, rather than an entirely merged entity?
What does this matter? The comparison between Abebooks and eBay shows that the prohibition on exclusive dealing depends perhaps more on historical circumstances as it does on theories about economic efficiency. Forcibly opening up the industrial processes of integrated firms to competitors is a bit hard for the competition regulator. Blocking attempts at integration by firms that have in the past allowed a degree of open access is much easier. But surely both have similar merits - if the ACCC claims it knows the most efficient and competitive degree of any given firm’s integration, why wouldn’t it be going hard against Abebooks as well?
Abebooks presumably don’t own Mastercard or Visa, whereas eBay owns PayPal.
From a seller’s perspective, eBay charges listing fees, as well as fees and commissions on sales. PayPal takes another commission on the sale. Enacted across the world, eBay will pick up $billions extra in commissions - compulsory double dipping. A direct deposit to a bank account costs little or nothing. Consumer choice would dictate that alternative methods of payment also be allowed, according to what’s convenient or appropriate.
As a buyer, I love PayPal for the convenience and added safety. As a seller, I would rather have the choice - especially for items with a large ticket price. Under the existing arrangements, sellers still have the right to limit payment methods - to PayPal only if desired.
The ACCC is correct to label eBay’s stance as anti-competitive. Free market economics depends on choice and competition. But then again, it seems to me that the IPA is more concerned with the interests of its patrons than promoting real competition.
Comment by Slim — 16/6/2008 @ 2:07 pm
Slim, I’m fairly sure that the IPA doesn’t receive any money from Abebooks, Mastercard, Visa, eBay or PayPal. Some people seem to think that the posts on my private blog are somehow ghostwritten by a committee of corporate PR flacks.
But to address your point: eBay also allows Mastercard and Visa through PayPal. Abebooks allows Mastercard and Visa through their own internal payment gateway. How does eBay using PayPal as a payment gateway differ from Abebooks using their unbranded internal payment gateway? As you point out, eBay owns PayPal. From the perspective of the ACCC, why are they not treated as an integrated company?
If your concern is mainly focused on PayPal’s fees, as the two companies have a common ownership, they could be seen as simply multiple fees charged by eBay for its service. Indeed, many firms separately itemise fees. Lots of itemised fees may not be very transparent, but I don’t see why that would be something for the competition regulator to be concerned with.
Comment by Chris Berg — 16/6/2008 @ 3:09 pm
The distinction is that (from the ACCC decision) eBay isn’t an online marketplace like Abebooks is, it’s in the market of providing online marketplaces. Abebooks is like each seller who uses eBay to provide their own marketplace. It’s the seller that has the right to choose what payments they want to accept, not eBay.
Comment by James — 18/6/2008 @ 3:11 pm
[...] to the ACCC and believes eBay may well have shot themselves in the foot. Chris Berg wants to know why the ACCC aren’t chasing other companies who only allow a single method of online payment, i.e. Credit Cards 55. gilmae: Possibly because [...]
Pingback by Club Troppo » Missing Link Daily — 22/7/2008 @ 8:30 am