Abstract: This week the Australian Treasury released a Proposal for a new legislative regime to regulate economic power of digital platforms. The proposed framework is digital platform-specific, and would introduce new ex ante provisions targeting anti-competitive behaviours such as self-preferencing, tying, and barriers to consumer switching. The proposal is in line with European approaches. A successful outcome will help to address excessive market power and help to maintain competitive markets and productivity growth.

New proposals to crimp digital platform market power

This week, the Federal Treasury Department released a Proposal paper for a new digital competition regime. The proposal emerged from the ACCC’s long-running Platform Services Inquiry. In November 2023, the Australian Government responded by accepting the need for a new ex ante regulation regime for these platforms. 

The Treasury proposal, if implemented, would specify a list of digital platform services to be regulated, potentially aligning with the European Union’s list of core platform services. This list could include app distribution, digital content aggregation, social media, search engines, electronic marketplaces, video-sharing platforms, online messaging, operating systems, web browsers, virtual assistants, cloud computing, online advertising, and media referral services. The regime would also be adaptable, allowing updates to the list to address new and emerging digital platform services as technology and market dynamics evolve.

The platform designation framework aims to regulate large platforms that significantly impact Australian consumers and the economy, particularly those posing substantial competition risks. The designation process, conducted by the “relevant Minister” (undefined) based on an ACCC investigation, identifies platforms required to adhere to specific obligations. Both qualitative and quantitative tests would be used to identify “large” platforms.

The associated obligations encompass both broad and service-specific requirements.

The broad obligations, to be outlined in primary legislation, address common anti-competitive behaviors across various services. Designated platforms must avoid self-preferencing, tying products or services, and must facilitate easier switching to competitors. They are also required to ensure fair treatment of business users and provide greater transparency regarding their policies, processes, and data handling practices. These may include new reporting requirements e.g. record keeping requirements..

Service-specific obligations initially focus on app marketplaces and ad tech services, with potential expansion to other services. These tailored rules, detailed in regulations, would guide platforms in fulfilling their broad obligations. For app marketplaces, this includes prohibiting self-preferencing in search results, removing mandatory use of platform payment systems, and ensuring transparent communication of app review criteria. For ad tech services, platforms would be required to provide clear information on pricing and performance, avoid unfair advantages for their own services, and address conflicts of interest.

The ACCC will enforce compliance, investigate breaches, and impose penalties as necessary. Proposed penalties align with the maximum financial penalties under the Competition and Consumer Act, which include fines of $50 million, three times the benefit obtained, or 30% of adjusted turnover during the breach period. This enforcement ensures that designated platforms adhere to the established obligations, promoting fair competition and protecting consumer interests.

Consultation on the proposals will be open until 14 February 2025. 

Why does this matter?

This proposal gained less traction in international media than last week’s social media age ban, but is more significant. The economics of digital platforms tends to produce oligopolies or even monopolies, and they increasingly reach across the economy into multitudes of activities ranging from web searches to event ticketing. There is a real risk that digitalisation of the economy could lead to a much less competitive market, lowering our already low productivity growth. Addressing this is important to a pro-productivity agenda.

For this reason, we concluded a couple of years ago that we had reached “peak platform”. This never meant that the big digital platforms would disappear. Rather, it meant that the days of untrammelled platform power were drawing to a close, and that governments would step in to limit this power.

The Proposal Paper makes it clear that Australia’s move is clearly closely tied to developments in other European and UK jurisdictions. This is good, as Australia does not have the clout to challenge these platforms alone. A concerted international response is required, and is now emerging.

This raises the question of the incoming Trump administration’s attitude to these developments. Silicon Valley support for Trump was notable this election, as Democrat appointments at the US FTC were criticising platform economic behaviour. 

However, there is a strong strand of anti-platform sentiment in the Republican Party too, despite Elon Musk’s prominent support of Trump. The issue is contested within the ruling Republican Party. In short, we cannot assume that the US Government will ride to the rescue of US-based platforms beyond its already-stated commitment to free speech.

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