Gina Cass-Gottlieb: Steps for driving competition in our economy

Australian Competition and Consumer Commission chair Gina Cass-Gottlieb. Picture: Gary Ramage

This is the text of the speech Australian Competition & Consumer Commission chair Gina Cass-Gottlieb delivered at The Australian’s Economic and Social Outlook Conference in Melbourne today.

---

I am delighted to be speaking to you today, here at the Economic and Social Outlook Conference, particularly in the context of this year’s theme - ‘Bold Ideas for a Defining Decade’.

Core to the ACCC’s work is the belief that informed and confident consumers enable competition on its merits to thrive, in turn driving workably competitive markets that deliver for consumers.

In other words, informed and confident consumers benefit and are benefited by potent competition – it delivers better quality and services, lower prices and more choice for consumers, while boosting productivity and innovation.

As we consider the big themes of our time – including the transition to a low emissions economy, the growth of the care economy and the profound impact that technology and digital platforms are having on our lives and livelihoods – it is our position that effective competition and consumer law frameworks will be critical so that the benefits of these changes can take place, while limiting any associated detriments to consumers and the economy.

It is with this in mind that I speak to you today about some of the steps we believe are needed to drive competition in our economy, particularly merger law reform and regulation of digital platforms.

I will also touch on the importance of sustainability and the environment to our work, not only in combating greenwashing but also how we protect and promote competition during the transition to a low emissions economy.

I will also provide an update on the ACCC’s work in examining the childcare industry, which has already thrown up some fascinating observations about how consumers and competition are interacting in this essential sector.

Mergers reform

I have mentioned a few of the big themes of our time, and in doing so I must note that we are not alone in confronting some of the challenges presented under these themes.

Many competition and consumer regulators around the world are also considering bold ideas in response to these challenges.

From a competition perspective, Australia is experiencing an overall rise in industry concentration which is also an issue being raised and considered globally.

Concentrated markets are not good for consumers, or economic growth and productivity.

One key way to address this is to have an effective merger regime that prevents anticompetitive mergers that lead to increased concentration and further reduction in competitive and dynamic markets.

Earlier this year, I raised concerns about our ability under the current law to prevent further consolidation via anti-competitive acquisitions, particularly in the face of cost of living pressures, supply chain challenges and the growing importance of digital platforms.

While it is recognised that the vast majority of merger transactions do not harm competition, some mergers can cause a long-term change in the structure of a market that result in an enduring lessening of competition, to the detriment of consumers and the economy.

For some time now, we have been concerned that the design of our current merger regime is not fit for purpose and is out of step with international best practice.

As the law stands today, there is no requirement for businesses wanting to merge to notify the ACCC.

There is also no law that obligates parties to wait for clearance before they can complete the transaction.

When the ACCC considers a merger to be anti-competitive, and where the merger parties do not voluntarily abandon the transaction or offer remedies that address the competition concerns, we must take court action seeking to prevent or unwind the transaction.

Australian Competition and Consumer Commission chair Gina Cass-Gottlieb. Picture: Sam Ruttyn

A particular challenge with the current law is the requirement for the ACCC to prove future anti-competitive effects are likely, to the civil standard of proof required by our courts.

Over time, our merger framework has developed into what is known as the ‘informal merger review’ process, without any supporting legislative process, to enable businesses to seek the ACCC’s view on whether their transaction will be opposed.

This sits in contrast to applications for merger authorisation, which is a voluntary but formal administrative process that is much less used.

In fact, more than 93% of merger matters before the ACCC go through the informal process.

Only seven acquisitions have gone through the merger authorisation process since 2017.

While the informal regime has worked well for many years, we are increasingly finding that businesses are pushing the boundaries and compromising the effectiveness of the informal merger review process.

As there are no up-front information requirements for an informal review, merger parties are increasingly giving us late, incomplete, or incorrect information.

An increasing number are threatening to complete their transaction before we have finalised our review and in some cases, we are not notified at all.

When it comes to global transactions, we have found that merger parties frequently prioritise other jurisdictions that require mandatory notification and clearances over our voluntary informal regime, as was the case with the proposed merger of Cargotec-Konecranes about which we expressed preliminary competition concerns. This proposed transaction was ultimately abandoned by the merger parties.

This situation has negatively affected our ability to assess mergers and prevent potentially anti-competitive mergers.

To meet these challenges, the ACCC has called for the voluntary enforcement model to be replaced by a formal mandatory notification and clearance model on a similar basis to the current legislated formal authorisation test.

In this model, merger parties must demonstrate to the satisfaction of the ACCC, or the Australian Competition Tribunal on review, that their transaction is not likely to substantially lessen competition before they legally can proceed.

This is important because it recalibrates the decision on whether a merger proceeds where there is a risk of competitive harm. In these times of greater uncertainty from the pace of digital transformation and the necessity of the net zero transition, this test protects and promotes the public interest in the maintenance of competitive markets.

It means the ACCC, or the Australian Competition Tribunal on review, must be satisfied that there is no likely substantial lessening of competition before a merger can proceed.

As part of our proposals, it would be mandatory to notify the ACCC of proposed mergers above specified thresholds, transactions would be suspended from completion without ACCC clearance, and there would be upfront information requirements.

These changes may seem bold given our current framework, but our proposals reflect common elements of merger regimes applied around the world, and it would bring Australia more into line with most other OECD jurisdictions.

In addition to these changes to the process, our reform proposals also include proposed changes to the merger test to bring greater focus to the impact of mergers on the structural conditions for competition and identifying the competition that is lost when the acquirer has substantial market power.

We are pleased to see merger reform on the Government’s competition review agenda and we look forward to engaging with that process.

Digital Platforms

Another area the ACCC is focusing on is how we as a nation regulate digital platforms.

Digital platform services are crucial to how Australians connect, make purchases, work and study.

Importance of digital platforms

Australians spend almost six hours a day online and many Australian businesses depend on digital platforms to access consumers.

We know that 80% of Australians are social media users and in just one month (September 2022), over 150,000 Australian businesses advertised on Facebook or Instagram.

It should be no surprise that Google, Apple, Meta and Microsoft each earn hundreds of millions of dollars in Australia each year.

The tech sector contributed an estimated 167 billion dollars to the Australian economy in the 2021 financial year alone, equivalent to 8.5% of our GDP.

The largest digital platforms are also continuing to expand their ecosystems of products and services, including into new markets such as financial products, education and health services.

As Australia’s competition and consumer regulator, we know that to encourage and ensure these digital platforms provide high quality and innovative services at fair prices and terms, we must have effective competition in these markets, and strong safeguards for consumers.

It is important to recognise that the price of these services isn’t always in dollars, but rather arises from exposure to targeted advertising and the harvesting of consumers’ data.

The ACCC’s work on digital platforms

The ACCC has been looking at digital platform markets since 2017 when we first examined their impact on news and journalism content and advertising services markets in the Digital Platforms Inquiry.

The world-first news media bargaining code was one of outcomes of this work.

In 2020 and 2021, we also considered the supply of digital advertising technology and agency services through the Ad Tech Inquiry.

Since then, we’ve examined a range of services as part of the five-year Digital Platform Services Inquiry, providing a report to Government every six months.

As part of this Inquiry, we have published reports on competition and consumer issues in search, app stores, online private messaging, electronic marketplaces and social media.

Our seventh interim report, which we expect will be released in the coming weeks, looks at expanding digital ecosystems, and our eighth report, due to the Government in March next year, will examine data brokers.

Effective competition and consumer law frameworks will be critical so that the benefits of these changes can take place

Across this work, we have identified systemic and widespread competition and consumer concerns that may have resulted in reduced choice, innovation and quality, and higher monetary and non-monetary prices in these markets.

We’ve also seen rising levels of scams, the proliferation of fake reviews, and a lack of effective dispute resolution harming consumers and small businesses.

In September last year, as we reached the halfway point of our inquiry, we provided our fifth interim report to Government, recommending significant regulatory reforms to better promote competition and protect consumers in digital platform markets.

There is significant progress internationally to address the competition concerns and consumer harms that are becoming increasingly apparent in digital platform markets. We must keep pace with this progress.

We have recently seen the United Kingdom, Germany, Japan and the European Union all introducing new competition and consumer regulations for digital platforms.

As consumers, developers and businesses in other countries are gaining the benefits of enhanced competition and consumer laws that apply to digital platforms, it is critical that Australia isn’t left behind.

Deficiencies with current competition laws for regulating digital platforms

We made these reform recommendations because our competition and consumer laws need be improved to address the rising harms from digital platforms.

Investigation and enforcement action under competition law is particularly lengthy, resource intensive, and may not provide timely or effective outcomes that return fast-moving digital platform markets to a competitive state.

For example, Epic Games instigated proceedings in Australia against Apple in 2020 and Google in 2021, alleging anti-competitive conduct relating to restrictions on the use of competing in-app payment systems. Those cases won’t be heard until March 2024.

However, even when successful, litigation may not adequately address the entrenched systemic and widespread harmful conduct in digital platform markets.

This is because court processes focus on specific instances of conduct, and are necessarily confined to remedies for past harm.

Current laws and remedies often cannot address the underlying causes of market power.

In addition, it is not clear that enforcement action taken to date under the Australian Consumer Law has been effective in shifting the compliance culture of these firms.

Digital platform reforms

This is why we have recommended new competition rules for powerful digital platforms, to stop harms to consumers and competition before they occur.

Specifically, we have recommended service-specific mandatory codes of conduct, which would apply to ‘designated digital platforms’.

Each code would introduce targeted obligations to address the types of anti-competitive conduct most relevant to that service, and only apply to a small number of digital platforms.

We believe that these codes of conduct, which would attract high penalties if breached, should assist in addressing a range of conduct we have observed the most powerful digital platforms engaging in, which is interfering with the process of competition.

This includes self-preferencing; bundling and tying; exclusivity agreements; impeding switching; denying interoperability; and withholding access to important hardware, software, and data inputs.

On the consumer protection front, we firstly reiterated our support for economy-wide reforms to the Australian Consumer Law to better protect consumers both on- and offline.

The stronger unfair contract term provisions that will soon attract significant penalties for businesses that use or rely on unfair terms, will be important for deterring their use, including in digital platform markets.

We also welcome the Government’s consultation on possible reforms to the Australian Consumer Law to address unfair trading practices, which cause considerable harm to consumers, yet are currently unregulated.

A prohibition on unfair trading practices could address various types of harmful conduct in the digital space – for example, subscription traps and manipulative user interfaces.

In addition, we have recommended new mandatory obligations on all digital platforms to address scams, harmful apps and fake reviews, and to improve dispute resolution processes.

This is critical given that Australians reported losses of over 80 million dollars to scams on social media in 2022, up from losses of 56 million in 2021 and 27 million in 2020 - and we know scams are greatly underreported.

The relative ease with which fake reviews and ratings can be published on social media can also pose harms to both consumers and businesses.

This is why we have recommended new legal obligations on digital platforms such as notice and action requirements to address scams, harmful apps and fake reviews, and stronger verification of certain business users, like those advertising financial products.

We have also recommended mandatory internal dispute resolution standards and the introduction of an external ombuds scheme to deal with disputes between platforms and users that can’t be resolved by the platform.

All these new proposals would of course complement Australia’s existing competition and consumer laws.

The Government has conducted a public consultation on our recommended reforms, and we eagerly await its response. As demonstrated by the number of cases we have already taken, we will continue to take action where we consider digital platforms are breaching existing laws.

Sustainability and the ACCC

There isn’t a more appropriate place than a conference about this defining decade where I can and should talking about sustainability and how this is, and will, continue to be part of the ACCC’s work.

Greenwashing

In our consumer engagement and protection work, we are seeing consumers increasingly considering the environmental impact of goods and services they buy. There is little doubt that informed consumers exercising choice could be a powerful force for Australia’s transition to net-zero emissions.

Yet the negative impacts on consumers and business of greenwashing is also getting more and more apparent and serious.

We have seen that some businesses use false or misleading environmental credentials to unfairly capitalise on the environmental preferences of consumers.

Consumers may pay a premium price for green products without there being any such environmental benefit.

Businesses may also experience a competitive disadvantage by incurring additional production costs to make genuine environmental claims, unlike competitors making false claims.

The issues around greenwashing are compounded because environmental claims may be about a product or service or a business’ overall corporate practices. They are often difficult for end user consumers to verify or check because of significant information asymmetry.

After all, how are consumers at a supermarket really going to know if something they buy is from a business that truly offsets its carbon emissions or if a product is really made from recycled materials?

An internet sweep of environmental claims we conducted in October 2022 found that 57 per cent of the 247 businesses we looked at were making claims that had the potential to be unclear or misleading.

The cosmetic, clothing and footwear and food and drink sectors were found to have the highest proportion of concerning claims among the industries we targeted.

To address the high prevalence of unclear environmental claims and key types of unclear claims in the market, the ACCC recently developed and consulted guidance for businesses making environmental claims.

Ultimately, we want to see businesses competing vigorously and fairly for the green dollar, confidently making truthful and accurate environmental claims so consumers can exercise their informed choice.

The environment and competition

In addition to the focus on the environment in our consumer protection work, sustainability and environmental factors are also increasingly becoming prominent in our competition work.

In October, for the first time, the ACCC authorised a merger on the basis that environmental public benefits would outweigh the detriment the merger’s anticompetitive effects would cause.

The ACCC has considered only a handful of merger authorisation matters, as most mergers are considered as part of the informal merger review system I covered earlier.

The decision to authorise Brookfield and MidOcean to purchase Origin energy was a finely balanced one.

Under the Competition and Consumer Act, the ACCC must not grant authorisation unless it is satisfied in all the circumstances that the proposed acquisition would not be likely to substantially lessen competition, or that the likely public benefits would outweigh the likely public detriments.

On the first limb of the test, we were not satisfied that the proposed acquisition would not be likely to substantially lessen competition.

However, in weighing the likely public benefits and likely detriments, we considered that the acquisition will likely result in an accelerated roll-out of renewable energy generation, leading to a more rapid reduction in Australia’s greenhouse gas emissions.

We considered that the acquisition by a major global transition fund, with a specific mandate to focus on reducing carbon emissions and brings global experience in renewable generation, will give rise to a commercial incentive and ability to lower emissions more quickly than otherwise.

We believed the acquisition will lead to less emissions, which we think is a significant public benefit, given the need for Australia to contribute to the global challenge of climate change.

This is why after a detailed review, we were satisfied that the proposed acquisition is likely to result in public benefits that would outweigh the likely public detriments.

Some commentators and journalists at the time of our authorisation did ask me: does this elevate environmental benefits above others in getting clearance?

The short answer is no; the ACCC looks at all types of public benefits in its assessments and every merger is reviewed on its merits.

While efficiency enhancements are the most typical public benefit put to us, on these authorisation matters, the ACCC is required to have regard to a wide range of possible public benefits, or in the words of the Australia Competition Tribunal, “anything of value to the community generally, any contribution to the aims pursued by the society”.

Environmental outcomes were not put above other policy objectives, but rather the Competition and Consumer Act requires the ACCC to weigh any public benefit, of which the environmental outcomes were one, against any public detriment, which is typically a competition impact.

While the Brookfield, MidOcean and Origin deal was the first time environmental public benefits have been accepted in a merger authorisation, the ACCC has considered environmental public benefits in other authorisations involving competitor collaborations.

Some examples include arrangements and levies to foster recycling or safe disposal of environmentally harmful products, joint buying of “green” power and joint tendering to facilitate investment in greener waste collection and recycling.

Childcare

Last month we published the second interim report of our Childcare inquiry, which will deliver its final report at the end of the year.

As we consider this defining decade, there is arguably nothing more important than the start we are providing those who will live and work in the consequential decades to come.

Our inquiry is considering the market for childcare, including costs, availability, supply and prices. As we have reported, Market forces alone have failed to meet community expectations and government objectives for childcare services.

We have carefully examined the childcare sector and the impacts for consumers and consider that market dynamics under current policy settings are not delivering on accessibility and affordability for all children and families across Australia.

Our analysis provides important new insights into the costs of supplying services, how parents and guardians choose to use childcare and provides an evidence base for important policy discussion and consultation.

Key is the fact that parents and guardians consider price when they decide how much childcare to use, but often this does not factor in their decisions about which provider to use.

Instead, rather than looking for the cheapest service, parents and guardians tend to look for a service that is priced around the prevailing market price (not too high or too low) and which delivers value for money, taking into account perceptions of quality.

Market dynamics are encouraging more supply in socio-economically advantaged areas and major cities, where parents and guardians generally have greater ability and willingness to pay.

Remote communities, and locations with a higher proportion of lower income households have fewer childcare services and are relatively under-served.

Our report’s findings highlight areas in which changes could lead to better outcomes for the community, particularly those needing childcare in lower income households and in very remote locations. We have made draft recommendations to re-examine childcare policy settings, and are now seeking feedback from childcare providers, educators, families and interested community organisations.

Importantly we have recommended that the government reconsider and restate their key policy objectives and priorities, and consider further changes to the Child Care Subsidy and broader policy measures to better address government priorities and unintended consequences.

Conclusion

The purpose of many of these reforms I have touched on today is to promote workably competitive markets because it delivers better quality and services, lower prices and allows consumers to exercise effective choice.

It also creates opportunity for new entrants to test the market, which can bring more productivity and innovation.

The ACCC as Australia’s competition and consumer regulator has a crucial role to play as technology, the economy, the importance of environment and the care economy become more and more prominent.

It is a bold body of work I am looking forward to.

IR casual work reforms set Anthony Albanese on collision course with unions