Australian Competition and Consumer Commission (ACCC) chair Rod Sims has declared market power, or the lack of competition, is having broader effects on the Australian economy, starting the debate on how mergers are handled down under, particularly those involving big tech.
“The reason we are proposing change is not because we are worried about losing court cases; it is because we have serious concerns about the level of competition in our economy and our ability under the current law to prevent further consolidation via anti-competitive acquisitions,” he told the Law Council of Australia’s competition and consumer workshop on Friday.
“Unless something is done, these concerns will only intensify in the years ahead.”
Sims’ proposal is for the start of a new formal merger review process, changes to the mergers test, and reforms to deal with acquisitions by large digital platforms.
The ACCC wants the three ways to obtain clearance for a merger to be consolidated into one single method; this approach would also require all acquisitions above specified thresholds to be subject to mandatory notification to the ACCC before proceeding.
“It is to be expected that there will be some potentially problematic acquisitions that fall below the thresholds. We are therefore proposing that the ACCC have a ‘call in’ power for proposed acquisitions that are below the thresholds but where the ACCC considers there are potential competition issues which require a public review,” Sims said.
The four changes to the mergers test Sims wants are updating the merger factors; defining “likely”; including a deeming provision for acquisitions that entrench, materially increase, or materially extend positions of substantial market power; and adding a provision to allow agreements between the merger parties to be taken into account in the merger assessment of the likely effect on competition.
Sims, however, said the broader economy-wide proposals he has made might not be enough to enable the ACCC to scrutinise and, if necessary, block certain critical acquisitions by large digital platforms.
Therefore, the ACCC considers that a tailored test should be created for acquisitions by certain digital platforms.
“Effective scrutiny of acquisitions by the large technology firms is critical to protect both business users and consumers, who are so reliant on these platforms, from the adverse effects associated with market power,” he said.
The ACCC is proposing a process to specify which digital firms should be subject to this test.
This process, Sims explained, would consider factors such as the size and scope of the digital firm’s services in Australia, whether it is a “gateway” firm that is able to control how other businesses interact with consumers, and the firm’s market power.
He said the ACCC has not yet reached a view on the best test to capture anti-competitive acquisitions by digital platforms, while also not reducing incentives for innovation and development in the tech sector.
“However, at this point, our view is that the probability of competitive harm that needs to be established should be lower than that which applies for acquisitions in the economy more broadly,” he said.
Singling out Apple, Amazon, Facebook, and Google, Sims called them “serial acquirers”.
“Strategic acquisition[s] have helped these large platforms increase or entrench their market power. For example, between 2010 and 2020 Google, Amazon, Facebook, Apple and Microsoft acquired nearly 500 business — approximately four per month,” he said.
“We could debate at length which acquisitions by the digital platforms were ‘killer acquisitions’, that is acquisitions designed to prevent the emergence of a challenger, or were otherwise anti-competitive in existing or emerging markets.
“Regardless, it is beyond debate that acquisitions have taken place that have contributed significantly to the substantial market power of the digital platforms. With the benefit of hindsight, they should not have been allowed to proceed.”
The ACCC plans to hear the views of the public via consultation, with Sims concluding his speech by declaring: “We need merger reform to restore and maintain effective competition in Australia.”
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