With Aaron M Lane. Published at Truth on the Market
The Australian government’s announcement earlier this month of a proposed new competition regime for digital marketplaces has a long history.
The Australian Competition and Consumer Commission (ACCC) has been investigating digital-market competition for nearly a decade. The latest iteration of the ACCC’s digital platforms inquiry has published nine interim reports, with a tenth report to come. A previous iteration of the inquiry also released its own issues paper, preliminary report, and final report.
The current Australian Labor Party government is soon heading to the polls after its first term in office. The proposed new regime is likely to be a small but significant part of Prime Minister Anthony Albanese’s election pitch. This whole process was, however, instigated by the previous conservative Liberal National Coalition government. This bipartisan momentum reflects a persistent drive toward a more interventionist regulatory approach in digital markets.
The proposals that have come out of this process to date have been case studies in policy incoherence. The case of the News Media Bargaining Code, which had its origins in the first ACCC platform inquiry, is a particular example of incoherence in the aid of naked self-interest: it is no more than an expropriation from a politically disfavored sector (tech) to a politically favored sector (traditional media).
The government’s latest proposal requires one to accept some bold logic. The argument goes something like this:
- There are a few global digital platforms with significant market power (where the relevant market is both static and narrowly defined);
- This power allows digital platforms to either unilaterally increase consumer costs (notwithstanding many digital platforms providing zero-price services to their end users), or to do things like self-preferencing and locking consumers into particular hardware or software systems (ignoring pro-innovation incentives and pro-consumer effects);
- Enforcement is difficult, because technological development and adoption occur quickly, but court proceedings against digital platforms are lengthy and slow (notwithstanding the absence of a single example of regulatory competition enforcement against digital platforms in Australia); and therefore
- Australia needs an ex-ante system of anticipatory rules rather than an ex-post system that judges conduct following actual evidence of harm.
Let’s just accept all of that for now. What does the proposed new regime actually require?
The government proposes to designate particular digital platforms that have a “critical position in the Australian economy” using quantitative criteria similar to those in the European Union’s Digital Markets Act (i.e., turnover and user numbers) as well as qualitative criteria (for “flexibility”).
Once designated, the digital platforms would be subject to general obligations around anticompetitive conduct and unfair dealing that (presumably) go above and beyond what exists in Australia’s economy-wide competition law, as well as specific obligations that have been tailor-written to apply to particular digital platforms.
The whole idea here is that Australia is a “fast follower” of international platform regulation. But at the same time, the approach is relatively novel. Parliament will be asked to approve a general legislative regime that specifies the role of the ACCC, the process for designation, the general obligations imposed on all designated services, and a first-pass list of the types of platforms that could be designated. The Department of the Treasury suggests that everything from app marketplaces to operating systems, web browsers, search engines, cloud-computing services, and “virtual assistants” might be listed in the legislation.
This is an enormous swathe of the digital economy. And it is designed to expand. Once the legislation is implemented, the government will be able to add to it without legislative amendment. It is marketed as “ex-ante” regulation but there is something quite “ex-post” about it, as the regulatory target can be identified later without any of the usual procedures for finding that it has engaged in anticompetitive behavior or caused consumer harm.
Once a type of service is listed, which firms reach the size and significance to be designated under the regime is up to a government minister (presumably the treasurer) following advice from the ACCC. The ACCC and the government would then develop service-specific rules to which designated firms would be subject. For example, the government might require app stores to allow applications to host their own in-app payments without going through the app store’s payment platform.
While the designation of a firm is up to the minister, the rules that designated services have to abide by will be implemented as subordinate legislation (typically described as “regulation”). Under Australia’s parliamentary system, Parliament has the right to “disallow”—that is, veto—the regulation. Such vetoes do occur, but not that often.
Treasury claims that the government’s “hybrid” approach—half legislative, half regulatory, with the potential for parliamentary disallowance—is structurally inspired by the Digital Competition Bill currently being considered by the Indian government. That legislation has, however, been pushed to next year, amid apparent disagreements within the Indian public service as to its scope and structure.
And while the government has clearly spent a lot of time trying to build a model that has both parliamentary oversight and regulatory flexibility (the flexibility here is all for the government, of course—not for participants in the digital economy), the scope of its ambitions is enormous. The political goal is clear: it is the first stage toward implementing the enormous body of recommendations of the ACCC’s last decade of work on digital platforms at the lowest possible political cost. The strategy shunts the actual policy decisions (that is, what are digital platforms in Australia allowed to do?) to regulation.
It’s worth pointing out that Australia is a Westminster-style system of government, where the executive is drawn from and responsible to the Parliament. The proposed model hands significant power to executive regulatory agencies more typically found in direct executive systems (with quite different checks and balances, such as formal rulemaking processes).
The fact that the rules will be subject to disallowance by the Senate is of little comfort. Indeed, the whole purpose of this structure is driven by the assumption that Parliament is unable, or unwilling, to seriously investigate the complexities of regulating the digital economy.
One of two things will happen. The Senate might waive through the vast majority of the government’s obligations, as it does with most subordinate legislation, in which case the legislative body will be handing enormous policy control over digital platforms to the ACCC and the government. Alternatively, the Senate might scrutinize these novel obligations carefully, in which case it ought to be capable of making such consequential policy decisions itself.
Nor is it entirely true to say that everything the government does under the proposed regime here is reviewable by Parliament. The government is considering giving the ACCC the power to specify “technical” rules in the implementation of the obligations. Treasury says this is broadly consistent with other regimes, such as the Gas Market Code. But in digital markets, technical rules are policy rules: the choice of standards and requirements around things like interoperability can easily favor one incumbent over another, or otherwise distort market competition.
The primary purpose of the Australian government’s proposed competition framework is to get through Parliament. It is not a policy proposal per se. We can surmise what policies it might enable—Treasury provides a few examples of what could be implemented to regulate app stores and ad markets, and the ACCC inquiries have an encyclopedic list of complaints and suggestions—but those are just examples.
In practice, this proposed framework pushes the hard policy choices about the digital economy onto future regulators and ministers who are willing to play chicken with the parliamentary-disallowance process.
