tag:theconversation.com,2011:/ca/topics/competition-law-10373/articlesCompetition law – The Conversation2024-01-23T18:59:47Ztag:theconversation.com,2011:article/2215012024-01-23T18:59:47Z2024-01-23T18:59:47ZWhy are Apple, Amazon, Google and Meta facing antitrust lawsuits and huge fines? And will it protect consumers?<p>Following a lengthy investigation, the United States Justice Department is set to file a lawsuit against Apple for <a href="https://www.bloomberg.com/news/articles/2024-01-17/justice-department-to-file-apple-antitrust-case-as-soon-as-march">potentially breaching antitrust laws</a>.</p>
<p>The department alleges Apple is using hardware and software limitations that make it harder for rival companies to compete with iPhones and iPads. </p>
<p>If the filing goes ahead, it will mean each of the “big four” tech companies – Amazon, Meta, Google and Apple – will have been sued by the US federal government within the past five years for monopolistic business practices. </p>
<p>As the digital market continues to grow, many countries including the European Union, Japan, the United Kingdom, the US, China, South Korea, India and Australia have all either introduced, or plan to introduce, competition legislation <a href="https://iccwbo.org/wp-content/uploads/sites/3/2023/09/2023-ICC-Global-report-on-competition-enforcement-in-the-digital-economy-1.pdf">specific to tech firms</a>. </p>
<p>But what are antitrust laws? And how are the tech giants breaching them?</p>
<h2>What are antitrust laws?</h2>
<p>Antitrust laws originated with the US <a href="https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=3112&context=dlj">Sherman Antitrust Act of 1890</a>. This law banned business arrangements which restrained trade, and <a href="https://heinonline.org/HOL/Page?collection=journals&handle=hein.journals/catoj9&id=743&men_tab=srchresults">prohibited attempts to monopolise</a>.</p>
<p>Over time, the Sherman Antitrust Act evolved into what are today’s antitrust laws, adopted in countries all over the world. </p>
<p>Antitrust laws are <a href="https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=2977&context=faculty_scholarship">enforced at domestic levels</a> and allegations of breaches of these laws pertain to domestic markets. These laws – also known as competition laws – prohibit business practices that promote unfair monopolies, stifle competition and reinforce dominance or power. </p>
<p>In recent years, technology products – whether apps or physical products like phones and computers – have been under an enormous amount of scrutiny. Calls for regulating the development and use of technology have a <a href="https://www.themandarin.com.au/222945-ai-regulation-its-time-to-act-australia/">dominant focus on artificial intelligence</a>.</p>
<p>Meanwhile, the business practices of tech giants are garnering less public attention. So it’s noteworthy that the antitrust lawsuits filed against the big four focus on the companies, not just their products. </p>
<p>The allegation is these companies are concentrating the market and therefore charging higher markups for their goods and services, while having less incentive to innovate <a href="https://www.publicaccountant.com.au/features/a-lack-of-competition-is-hurting-consumers-and-the-economy-2">in ways that benefit consumers</a>.</p>
<h2>How are tech giants breaching antitrust laws?</h2>
<p>Of the big four, Apple is not the first to be accused of breaching antitrust laws.</p>
<p>In the past decade, the European Union has fined Google <a href="https://www.reuters.com/technology/google-last-ditch-effort-overturn-26-bln-eu-antitrust-fine-2023-09-19/">a total of €8.25 billion</a> (A$13.6 billion) for three separate breaches of EU’s antitrust laws.</p>
<p>These related to misuse of Google Shopping to disadvantage competitors <a href="https://ec.europa.eu/commission/presscorner/detail/es/MEMO_17_1785">in 2017</a>, unfair dominance of the Android operating system market <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_18_4581">in 2018</a>, and abusive practices in online advertising <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_19_1770">in 2019</a>. The advertising business accounts for <a href="https://theconversation.com/ais-threat-to-google-is-more-about-advertising-income-than-being-the-number-one-search-engine-200094">80% of Google’s income</a>.</p>
<p>While Google and its parent company Alphabet did enact some changes to their practices following these EU rulings, to date Google <a href="https://abcnews.go.com/Technology/wireStory/google-pay-multibillion-fine-antitrust-shopping-case-eu-106286458">has not paid</a> these fines and continues <a href="https://www.reuters.com/technology/google-last-ditch-effort-overturn-26-bln-eu-antitrust-fine-2023-09-19/">to appeal them</a> in <a href="https://www.cnbc.com/2022/09/14/eu-court-backs-antitrust-ruling-against-google-but-reduces-fine.html">various instances</a>.</p>
<p>In 2020, the US Justice Department also filed an antitrust lawsuit against Google for monopolising multiple <a href="https://www.justice.gov/opa/pr/justice-department-sues-google-monopolizing-digital-advertising-technologies">digital advertising technology products</a>.</p>
<p>The ongoing lawsuit claims Google monopolised the “ad tech stack” – the key technologies publishers and advertisers use to sell and buy ads. It is alleged Google neutralised or eliminated ad tech competitors through acquisitions, which forced publishers and advertisers to use its products. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-us-is-taking-on-google-in-a-huge-antitrust-case-it-could-change-the-face-of-online-search-148519">The US is taking on Google in a huge antitrust case. It could change the face of online search</a>
</strong>
</em>
</p>
<hr>
<p>In 2021, the US Federal Trade Commission and more than 40 US states sued Meta, claiming the tech company eliminated competition by <a href="https://www.nytimes.com/2020/12/09/technology/facebook-antitrust-monopoly.html">buying up its rivals</a>. </p>
<p>The two biggest purchases under scrutiny are Instagram, which was purchased for US$1 billion in 2013, and WhatsApp, which was purchased for US$19 billion in 2015. The lawsuit alleges these purchases eliminated competition which had the potential to challenge Meta’s dominance. </p>
<p>In 2023, the US Federal Trade Commission and 17 state attorneys general sued Amazon, claiming the tech company used anticompetitive and unfair strategies to maintain a <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power">position of dominance in the market</a>.</p>
<p>The US lawsuits against <a href="https://www.vox.com/technology/2023/9/11/23864514/google-search-antitrust-trial">Google</a>, <a href="https://www.theguardian.com/technology/2023/oct/24/instagram-lawsuit-meta-sued-teen-mental-health-us">Meta</a> and <a href="https://www.washingtonpost.com/technology/2023/09/26/amazon-antitrust-lawsuit-ftc/">Amazon</a> are ongoing, with no decisions handed down as yet. </p>
<h2>What is Australia doing to protect consumers?</h2>
<p>The Australian federal government has also been investigating global tech giants. Since 2021, the government has investigated legislative methods <a href="https://www.theguardian.com/australia-news/2021/oct/30/what-is-the-australian-government-doing-to-crack-down-on-big-tech-and-why">for protecting Australian consumers</a>.</p>
<p>One example is the Australian Competition and Consumer Commission (ACCC) news media bargaining code. The code requires digital platforms operating in Australia to <a href="https://www.accc.gov.au/by-industry/digital-platforms-and-services/news-media-bargaining-code/news-media-bargaining-code">compensate domestic news publishers</a> for the use of their content. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-2021-was-the-year-governments-really-started-to-wise-up-against-big-tech-172871">How 2021 was the year governments really started to wise up against big tech</a>
</strong>
</em>
</p>
<hr>
<p>Despite these advancements, Chandni Gupta, Deputy CEO and Digital Policy Director at the Consumer Policy Research Centre, <a href="https://lsj.com.au/articles/what-the-us-federal-trade-commission-v-amazon-case-means-for-australia/">points out</a>:</p>
<blockquote>
<p>There are gaps in both Australia’s privacy laws and the consumer law, which can leave Australians with far fewer protections online than consumers in the US and other countries.</p>
</blockquote>
<p>The ACCC released its second Digital Platform Services Inquiry <a href="https://www.accc.gov.au/about-us/publications/serial-publications/digital-platform-services-inquiry-2020-2025/digital-platform-services-inquiry-march-2021-interim-report">interim report in 2021</a>. The report’s findings indicate Google’s Play Store and Apple’s App Store have significant market power in the distribution of mobile apps in Australia, and measures are <a href="https://www.accc.gov.au/media-release/dominance-of-apple-and-googles-app-stores-impacting-competition-and-consumers">needed to address this</a>. Examples of measures the ACCC proposed include increasing transparency and providing greater choice of default apps for consumers.</p>
<p>In 2023, ACCC chair Gina Cass-Gottlieb publicly addressed <a href="https://thewest.com.au/technology/gina-cass-gottlieb-goes-after-apple-microsoft-amazon-google-and-meta-in-call-for-competition-law-fix-c-12231673">the dangers of the big four</a>. The commissioner referred to the tech giants as “serial acquirers” and raised concerns about their measures for extending and protecting their market power. </p>
<p>Antitrust laws exist to maintain fair competition among businesses. Breaches of these laws mean companies are influencing the market to the detriment of other, usually smaller companies.</p>
<p>If governments are successful in holding tech giants to account, this could drastically redefine the tech market, making way for more equitable competition and more ethical business practices.</p><img src="https://counter.theconversation.com/content/221501/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Zena Assaad does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Governments around the world keep filing antitrust lawsuits against the ‘big four’ tech companies. Here’s why that matters for everyone who uses their products.Zena Assaad, Senior Lecturer, School of Engineering, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2199292023-12-21T17:37:07Z2023-12-21T17:37:07ZScrutiny of OpenAI and Microsoft relationship could affect how AI industry grows and innovates<figure><img src="https://images.theconversation.com/files/566952/original/file-20231220-19-jnbdub.jpg?ixlib=rb-1.1.0&rect=71%2C44%2C5838%2C3907&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sam Altman, CEO of OpenAI.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/openai-cofounder-chatgpt-ceo-sam-altman-2390534439">MeSSrro/Shutterstock</a></span></figcaption></figure><p>The boardroom of OpenAI, the business that developed ChatGPT, has seen some turbulent times recently. But while the drama around the sacking and reinstatement of CEO Sam Altman has subsided, the company now faces investigation by the UK competitor authority – a regulator that’s been increasingly training its spotlight on big tech in recent years. </p>
<p>After the surprise sacking of Altman by OpenAI’s board in November, he was immediately hired by tech giant Microsoft, which also pushed for him to be reinstated as CEO of OpenAI. A few days later it was confirmed that Altman was back as OpenAI CEO, alongside a new board on which Microsoft was granted a non-voting observer seat. </p>
<p>Microsoft is the biggest investor in the commercial arm of OpenAI. It has put around <a href="https://www.cnbc.com/2023/04/08/microsofts-complex-bet-on-openai-brings-potential-and-uncertainty.html">US$13 billion</a> (£10.3 billion) into the business. It’s also the exclusive supplier of the cloud computer services that OpenAI uses to develop and operate its AI models. </p>
<p>Even though Altman was only out for less than a week, the episode could have a significant impact on OpenAI’s future. It revealed the strong links between OpenAI and Microsoft, prompting UK competition regulator, the Competition and Markets Authority (CMA), to <a href="https://www.gov.uk/government/news/cma-seeks-views-on-microsofts-partnership-with-openai">announce an investigation</a> into their relationship. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-openai-saga-demonstrates-how-big-corporations-dominate-the-shaping-of-our-technological-future-218540">The OpenAI saga demonstrates how big corporations dominate the shaping of our technological future</a>
</strong>
</em>
</p>
<hr>
<h2>Competition regulation</h2>
<p>The CMA wants to examine whether the current partnership between OpenAI and Microsoft is essentially a merger – that is, whether there has been an acquisition of control by Microsoft or a change in the nature of control. But it also signals the regulator’s intent to continue to closely examine big tech firms as it aims to protect consumers. </p>
<p>In addition to its investments, Microsoft only has non-voting observer status on OpenAI’s board. But if the CMA concludes the partnership is in fact a merger, it will start looking into whether this merger has led to a substantial lessening of competition (SLC). The CMA would then need to consider how to remedy the harm and this could result in a change in the governance structure of OpenAI.</p>
<p>Microsoft’s supply of cloud computing services to OpenAI will also be a crucial part of the investigation. If Microsoft is denying or restricting supply of these services to OpenAI’s rivals, the CMA could conclude that this harms competition. </p>
<p>OpenAI has also developed general-purpose AI systems that can improve a range of applications used widely by consumers, for example productivity software and search engines. The CMA will look at Microsoft’s <a href="https://www.sciencedirect.com/science/article/abs/pii/S0167718723000553">ability and incentive</a> to restrict the supply of AI systems to companies competing in these markets, for example rivals of Microsoft’s Bing search engine. </p>
<p>Either scenario could ultimately damage the choice and quality of services available to consumers – something competition authorities pledge to protect. </p>
<h2>Increased scrutiny of big tech</h2>
<p>The CMA’s examination of OpenAI marks a new level of scrutiny of high-tech sectors, which competition authorities across the globe have been keeping a close eye on for the last two decades. The CMA established a <a href="https://www.gov.uk/government/collections/digital-markets-unit">Digital Markets Unit</a> in 2021. </p>
<p>Its recent high-profile decisions include delaying Microsoft’s acquisition of Call of Duty game developer Activision Blizzard until it amended the terms of the deal. Before that, it ruled that Facebook owner Meta’s acquisition of GIF video provider Giphy was anti-competitive, <a href="https://www.theguardian.com/technology/2022/oct/18/facebook-meta-sell-giphy-cma">forcing it to sell Giphy</a>. </p>
<p>Concerns about restricting supply of products or services to rivals were also central to these cases. And its decisions demonstrate the ability and willingness of the CMA to impose significant structural remedies on companies. It’s even prepared to fully unwind deals that it deemed would harm competition. Other national regulators had already <a href="https://theconversation.com/microsoft-and-activision-the-big-questions-that-will-decide-whether-the-us-68-billion-deal-goes-ahead-209803">given the deal the green light</a> before the CMA’s intervention was resolved.</p>
<figure class="align-center ">
<img alt="Two hands holding a smartphone with the CMA logo, brightly coloured background." src="https://images.theconversation.com/files/566957/original/file-20231220-25-freci9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/566957/original/file-20231220-25-freci9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/566957/original/file-20231220-25-freci9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/566957/original/file-20231220-25-freci9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/566957/original/file-20231220-25-freci9.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/566957/original/file-20231220-25-freci9.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/566957/original/file-20231220-25-freci9.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Competition and Markets Authority promotes competitive markets and aims to protect consumers from unfair business activity.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/march-21-2023-brazil-this-photo-2277590033">rafapress/Shutterstock</a></span>
</figcaption>
</figure>
<h2>The challenges of regulating tech companies</h2>
<p>There are some factors that make it difficult for competition authorities to regulate high-tech markets, however. First, these markets are extremely dynamic and can evolve in ways that are unexpected. This makes it hard for competition authorities to accurately determine harm to competition and the impact potential remedies will have. </p>
<p>Second, these investigations often involve large, powerful companies with substantial lobbying power and major global presences. When the merger between Microsoft and Activision Blizzard was initially blocked by the CMA, the companies got a lot of press by claiming the decision showed the UK was “closed for business”. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-post-brexit-britain-is-still-open-for-business-despite-what-microsoft-says-204698">Why post-Brexit Britain is still open for business – despite what Microsoft says</a>
</strong>
</em>
</p>
<hr>
<p>On the other hand, the dynamic nature of these markets makes it essential for competition authorities to carefully scrutinise and, where necessary, intervene early-on as high-tech sectors emerge. Otherwise, there is a danger that first-movers can quickly entrench and exploit their dominant positions. Competition authorities allowed Facebook to acquire Instagram in 2012, for example, but now Instagram is so popular <a href="https://www.washingtonpost.com/outlook/2018/09/28/case-breaking-up-facebook-instagram/">this decision</a> has been criticised. </p>
<p>The potential for AI to drastically change all walks of life makes it imperative that the CMA (and other competition authorities) take this opportunity to shape how the sector develops and who benefits. </p>
<p>It’s still early days for AI, but the CMA could call on OpenAI to alter its ownership structure or it could even regulate how it operates or what it sells. This could give the CMA more control over how the market evolves, but would also require it to extensively monitor this complex market. </p>
<p>Either way, it has the potential to have a significant effect on how OpenAI grows and innovates, and who is able to benefit from its creations – as well as those from other companies in the burgeoning AI market.</p><img src="https://counter.theconversation.com/content/219929/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If the CMA concludes the partnership is in fact a merger, it will start looking into whether this has reduced competition.Matthew Olczak, Reader in Economics, Aston UniversityJon Guest, Senior Teaching Fellow in Economics, Aston UniversityKarishma Patel, Teaching Fellow in Economics, Aston UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2200202023-12-20T21:01:09Z2023-12-20T21:01:09ZCanada’s competition laws just changed: Here’s what you need to know<iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/canadas-competition-laws-just-changed-heres-what-you-need-to-know" width="100%" height="400"></iframe>
<p>The state of competition — or lack of it — has been on Canadians’ minds for a while. From the <a href="https://globalnews.ca/news/9597898/rogers-shaw-merger-closes-new-telecom-giant/">Rogers-Shaw merger</a> to the <a href="https://theconversation.com/increasing-monopoly-power-poses-a-threat-to-canadas-post-pandemic-economic-recovery-209308">concentrated grocery sector</a> and <a href="https://www.cbc.ca/news/business/canada-bread-price-fixing-1.6883783">record fines for bread price-fixing</a>, just about everyone agrees it’s time to improve our competition law.</p>
<p>The wait is over. Eighteen months after <a href="https://www.canada.ca/en/competition-bureau/news/2022/06/important-amendments-to-the-competition-act-come-into-effect.html">an initial set of reforms was completed in June 2022</a>, and six months after <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy/consultation-future-competition-policy-canada">public consultation on the future of competition law</a>, the second phase of reform is coming. </p>
<p>Most of this overhaul has been folded into the next budget bill, <a href="https://www.parl.ca/LegisInfo/en/bill/44-1/c-59">Bill C-59</a>, but a set of changes to competition law were just passed as the second part of Bill C-56, the <a href="https://www.parl.ca/LegisInfo/en/bill/44-1/c-56">Affordable Housing and Groceries Act</a>. </p>
<p>The title may give people the wrong idea; Bill C-56 won’t directly lower grocery bills. As Commissioner of Competition <a href="https://sencanada.ca/en/Committees/NFFN/NoticeOfMeeting/625484/44-1">Matthew Boswell said to the Senate committee</a>, the reform aims to make the economy more competitive. While competitive markets should lead to lower prices, it’s neither automatic nor immediate. Still, <a href="https://www.ourcommons.ca/DocumentViewer/en/44-1/FINA/report-13">Bill C-56 makes six big changes</a>.</p>
<h2>Market study power</h2>
<p>Market studies are an important way for the <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en">Competition Bureau</a> — Canada’s competition watchdog — to learn about an industry or sector outside of a specific case investigation. </p>
<p>Previously, when the bureau did these studies, it couldn’t force businesses to provide the information it needed. This was a constant irritant, as we saw in the <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/retail-grocery-market-study">Retail Grocery Market Study</a>. Relying on voluntary co-operation <a href="https://globalnews.ca/news/9796699/competition-bureau-canada-grocery-study-takeaways/">prevented the bureau from getting access to all the information it needed for its analysis</a>. </p>
<p>Bill C-56 has changed this by creating specific rules to govern the market study process. If it’s in the public interest, a market study can either be started by the commissioner or the Minister of Industry can ask the commissioner to do one. In either case, the two have to agree it makes sense and is feasible. The need to consult is supposed to guard against unreasonable use of the power by either party. </p>
<p>The study terms are also announced on a public website so interested parties can comment on them before they are finalized. If the bureau respects these conditions, it can apply for a court order to get information for its study from businesses <a href="https://laws.justice.gc.ca/eng/acts/C-34/page-2.html#docCont">under s. 11 of the act</a>, which is the same process used for investigations. Finally, studies have to be completed in 18 months and a report published on a public website.</p>
<h2>Repealing the efficiencies defence</h2>
<p>The second big change that Bill C-56 has made is repealing s. 96, which sets out the <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/merger-enforcement-guidelines#s12_0">efficiencies exception to merger law</a>.</p>
<p>Dating back to 1986, this exception allowed things like cost savings and economies of scale to be weighed against the anti-competitive effects of a merger, like price increases, reduced choice or less innovation. </p>
<p>The basic idea was that mergers that produce more savings than anti-competitive effects were deemed beneficial, even if it meant consumers faced higher prices. This differed from that of the United States and other countries <a href="https://one.oecd.org/document/DAF/COMP(2023)4/en/pdf">with consumer-focused approaches</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/supreme-court-ruling-makes-need-for-competition-act-reform-urgent-89985">Supreme Court ruling makes need for Competition Act reform urgent</a>
</strong>
</em>
</p>
<hr>
<p>Under Bill C-56, efficiencies will not longer be analyzed as a separate second step in merger analysis that gives it special status over other factors. Since nothing about efficiencies has been added to s. 93, their inclusion in merger analysis will rely on the clause that allows “any other relevant factor” to be considered. This leaves open how and when efficiencies could be qualified as pro-competitive. </p>
<p>This change applies to new mergers, not those already underway.</p>
<h2>Agreements between non-competitors</h2>
<p>Bill C-56 expanded the application of s. 90.1, the civil collaboration provision, to include agreements between parties who are not competitors. Previously, for s. 90.1 to apply, at least two of the parties had to be competitors. This change won’t come into effect until Dec. 15, 2024.</p>
<p>This adjustment was prompted by concerns that restrictive covenants — contract clauses that limit business activities — did not fit well into existing competition law, even where they negatively affected competition.</p>
<p>However, some argue <a href="https://www.ourcommons.ca/Content/Committee/441/FINA/Brief/BR12746179/br-external/CanadianBarAssociation-e.pdf">the change is too broad and could encompass a lot of agreements</a>. Additionally, provinces are best suited to creating rules to prohibit businesses from using contracts for anti-competitive purposes, since contract law is mostly a provincial matter. </p>
<h2>Charging excessive and unfair prices</h2>
<p>Charging excessive or unfair prices has been added to the list of anti-competitive acts under the abuse of dominance rules. While some might think this gives the bureau or affected consumers a way to go after businesses that charge unreasonably high prices, it’s not a consumer protection measure. </p>
<p>Charging excessive and unfair prices only qualifies as an anti-competitive act if there’s evidence it has a predatory, exclusionary or disciplinary effect on a competitor or if it substantially harmed competition. </p>
<p>Based on existing law, it’s not clear what the specific reference to excessive or unfair pricing will add to enforcement. But many rules on abuse of a dominant position have been changed, with more to come in Bill C-59, making it hard to predict how courts might interpret this provision. </p>
<h2>Changing how abuse of dominance is proved</h2>
<p>One of the most significant changes in Bill C-56 is the revamping of the conditions required to prove abuse of dominance.</p>
<p>The <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy/future-competition-policy-canada#V">guide to the public consultation </a> highlighted what critics have said: the abuse of dominant position rules in the Competition Act are needlessly technical and impose a heavy burden on the commissioner, with few successful cases.</p>
<p>Bill C-56 makes several changes to the existing rules, all stemming from a revised test for getting relief from a firm that abuses its dominance. </p>
<p>Previously, proving abuse of dominance involved proving three things: a firm’s dominance in a line of business, engagement in an anti-competitive act and that these actions negatively affected competition. Post-Bill C-56 it’s enough to show a firm is dominant and either the anti-competitive act or an anti-competitive effect.</p>
<p>Will this change allow more cases to be brought where dominant firms abuse their position? Business groups <a href="https://www.ourcommons.ca/Content/Committee/441/FINA/Brief/BR12802642/br-external/CDHoweInstitute-e.pdf">worry this change will create uncertainty, chilling innovation and business investment</a>.</p>
<p>The actual impact will depend on enforcement practices, but this could change once Bill C-59 makes it easier for private parties, like affected businesses or consumer groups, to initiate cases when the commissioner decides not to.</p>
<h2>Substantial increases to monetary penalties</h2>
<p>The final change brought about by C-56 is significant increases to the maximum administrative monetary penalty that can be imposed on dominant firms that harm competition.</p>
<p>The penalties have more than doubled, going from $10 million to $25 million for a first order and $15 million to $35 million for subsequent orders. These increases mean penalties can be better scaled to the size of dominant firms.</p>
<p>While Bill C-56 won’t immediately make groceries more affordable for Canadians, it does bring big changes to competition law. And there will be much more to come with Bill C-59.</p><img src="https://counter.theconversation.com/content/220020/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennifer Quaid holds research grants from the Social Sciences and Humanities Research Council of Canada. She is a Senior Fellow at the Centre for International Governance Innovation. She is also a member of Transparency International Canada and the chair of its Legal Committee.</span></em></p>A small set of changes to competition law were just passed as the second part of Bill C-56, the Affordable Housing and Groceries Act.Jennifer Quaid, Associate Professor & Vice-Dean Research, Civil Law Section, Faculty of Law, L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2146692023-10-06T07:34:41Z2023-10-06T07:34:41ZUS regulator is suing Amazon – here’s what this could mean for your online shopping<figure><img src="https://images.theconversation.com/files/552132/original/file-20231004-27-j64e6i.jpg?ixlib=rb-1.1.0&rect=0%2C0%2C4294%2C3214&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/germany-rostock-juni-13-2021-stack-1992003263">Elpisterra/Shutterstock</a></span></figcaption></figure><p>If you’re one of the <a href="https://www.businessinsider.com/amazon-shopping-prime-membership-us-stopped-growing-first-time-ever-2023-1?r=US&IR=T">more than 200 million</a> Prime members Amazon claims to have worldwide, you’ll be well aware of the benefits. Among other things, it gives you access to a video and audio streaming service and free, fast delivery on all Amazon-dispatched items – for <a href="https://www.amazon.co.uk/gp/help/customer/display.html?nodeId=G34EUPKVMYFW8N2U">less than £100 per year</a>. </p>
<p>One of the reasons so many consumers sign up for, <a href="http://germangutierrezg.com/Gutierrez2021_AMZ_welfare.pdf">and value</a>, this service is that Amazon offers a massive range of products that it’s difficult to buy cheaper elsewhere. But if Amazon’s offering is so great, why is the US competition regulator <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power">suing the online marketplace</a> to force it to change the very service that so many people seem to love? </p>
<p>According to the Federal Trade Commission (FTC), which ensures fair and competitive markets in the US, Amazon looks so good to consumers because it uses its dominant position to force its competitors to look even worse. Amazon makes more sales in the US <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1910129AmazoneCommerceComplaintPublic.pdf">than the next 15 largest online retail firms combined</a>, so any abuse of its market power could, as the lawsuit claims, “profitably worsen its service for customers”. </p>
<p>In other words, the FTC is accusing Amazon of using its significant market position to offer a less than stellar service because it’s more profitable for the company.</p>
<p>The FTC isn’t saying Amazon is too big. But <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-sues-amazon-illegally-maintaining-monopoly-power#:%7E:text=big%2C%20but%20because-,it%20engages%20in,-a%20course%20of">the regulator believes</a> its business model “prevents current competitors from growing and new competitors from emerging”. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-bezos-and-amazon-changed-the-world-154546">How Bezos and Amazon changed the world</a>
</strong>
</em>
</p>
<hr>
<p>Amazon has called the suit “<a href="https://www.aboutamazon.com/news/company-news/amazon-ftc-antitrust-lawsuit-full-response">misguided</a>” and said that, if successful, it would “force Amazon to engage in practices that actually harm consumers and the many businesses that sell in our store”. Examples it gave included having to feature higher prices, offer slower or less reliable Prime shipping, and make subscriptions more expensive.</p>
<h2>Consumers pay too much</h2>
<p>The FTC’s main claim is that Amazon artificially increases the price of most products sold online – on its platform but also on competing services. And the FTC says Amazon makes a lot of money in this way by squeezing both small businesses and consumers.</p>
<p>Businesses pay advertising fees to have their product displayed on Amazon. They then pay <a href="https://sell.amazon.co.uk/pricing?ref_=sduk_soa_priov_n#selling-plans:%7E:text=Our-,selling%20plans,-give%20you%20the">seller</a> and <a href="https://sell.amazon.co.uk/pricing?ref_=sduk_soa_prirf_n#referral-fees:%7E:text=Amazon%20jargon%3A-,Referral%20fees,-For%20every%20item">referral</a> fees (a percentage of the total price including things like shipping and gift-wrapping) in exchange for using it – and also need to pay for the cost of Amazon’s <a href="https://sell.amazon.com/fulfillment-by-amazon">fulfillment service</a> if they want to be eligible for free delivery. This means businesses send their products to an Amazon warehouse from which they are packed and shipped, but the service can also include dealing with customers and returns processing.</p>
<p>Amazon takes nearly one out of every two dollars of sales from the retailers who pay all those fees, according to <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1910129AmazoneCommerceComplaintPublic.pdf">the lawsuit</a>. This means a business that wants to charge $1 for a product on its own website must charge almost $2 to make the same profit when selling through Amazon.</p>
<h2>Selling on Amazon</h2>
<p>It would seem more sensible for a seller to offer their product for cheaper on another platform that charges lower fees. But Amazon has made that almost impossible, according to the FTC. The regulator claims the company permanently screens product prices on competing websites. If a business tries to sell for cheaper elsewhere, it is immediately punished.</p>
<p>Forcing sellers to sign a contract that stops them from offering their product for cheaper on another website has been illegal since <a href="https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A62016CJ0230">2017 in the EU</a>, and Amazon <a href="https://competitionlawblog.kluwercompetitionlaw.com/2019/07/30/bundeskartellamt-ends-abuse-probe-after-amazon-agrees-to-changing-business-terms-for-dealers/">agreed in 2019</a> to also remove these price parity clauses in North America and Asia. A study of the hotel platform booking.com shows <a href="https://www.sciencedirect.com/science/article/pii/S0014292120302555">this ban benefits customers</a>. </p>
<p>But the regulator suspects that, instead of using a contract, Amazon simply hides the businesses that undercut it from its site’s search results. <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/1910129AmazoneCommerceComplaintPublic.pdf">According to the suit</a>: “Using its vast surveillance network, Amazon systematically punishes sellers when Amazon detects a lower price on other online stores.”</p>
<p>So, to be able to include the Prime eligibility label – a guarantee of free delivery within one or two days to subscribers, which also improves visibility on the website – businesses must offer their products via Amazon fulfillment. This makes it much harder for them to sell from a competing platform – and if they did, their Amazon sales could suffer if they try to offer it at a lower price elsewhere. </p>
<p>As consumers, we see that Amazon offers the cheapest products and a wider range, so have no reason to shop somewhere else. We become lazy. If a shopping platform has a great range accompanied by helpful ratings and reviews from previous consumers, why would you even look somewhere else? Even more so if your site membership offers you free delivery. </p>
<p>But a well-functioning market relies on some consumers <a href="https://www.sciencedirect.com/science/article/pii/S0167718720300369">being savvy enough to look for the better deal</a>. If no one comparison shops, competition disappears and all consumers lose.</p>
<figure class="align-center ">
<img alt="A worker sorts Amazon packages on a conveyor belt in a warehouse." src="https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/552135/original/file-20231004-23-q9fyb7.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">An Amazon fulfillment centre in Vélizy, France.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/france-sept-23th-2019-logistics-activity-1514808590">Frederic Legrand - Comeo/Shutterstock</a></span>
</figcaption>
</figure>
<h2>What do consumers want?</h2>
<p>The FTC wants to end all these practices because it believes they hurt consumers. It doesn’t want sellers to have to rely on Amazon logistics, and is pushing to ban the anti-discounting practices that it says block potential competitors. It also wants to make it easier for customers to end their Prime subscriptions.</p>
<p>But is this really what consumers want? Amazon’s practices lead to higher prices than if it was offering a better deal to small businesses, according to the FTC. But, being so big and having those massive warehouses and sophisticated logistics also serves a purpose: Amazon can dispatch a huge variety of products quickly at a reasonable cost. </p>
<p>The FTC will have to win its case in court – and this has proven <a href="https://www.bloomberg.com/news/articles/2023-07-24/ftc-s-khan-defends-merger-record-after-microsoft-activision-loss">particularly difficult</a> in its other recent cases. Earlier this year, it <a href="https://www.reuters.com/markets/deals/us-ftc-withdraws-case-against-microsoft-activision-deal-before-internal-agency-2023-07-20/#:%7E:text=WASHINGTON%2C%20July%2020%20(Reuters),O">failed to block</a> Microsoft’s US$68 billion deal to buy game-maker Activision. </p>
<p>The main challenge for the FTC this time will be to prove that the practices it identifies as harming consumers are more important than the potential cost for us all of losing the comfort and scale of the services offered by Amazon. Whether or not western consumers are still doing most of their online shopping on a single platform in 10 years time will depend heavily on what the US court decides.</p><img src="https://counter.theconversation.com/content/214669/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If the competition regulator gets its way, it could force significant changes to the online shopping giant.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2130532023-09-15T19:37:08Z2023-09-15T19:37:08ZDespite legal costs awarded to Rogers-Shaw, the competition commissioner’s challenge to the telecom merger was not a waste of taxpayer money<figure><img src="https://images.theconversation.com/files/548400/original/file-20230914-21-zgpl5w.jpg?ixlib=rb-1.1.0&rect=36%2C189%2C4076%2C2507&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Competition Bureau has been ordered to pay $13 million to Rogers Communications and Shaw Communications by the Competition Tribunal.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" allowtransparency="" allow="clipboard-read; clipboard-write" src="https://narrations.ad-auris.com/widget/the-conversation-canada/despite-legal-costs-awarded-to-rogers-shaw-the-competition-commissioners-challenge-to-the-telecom-merger-was-not-a-waste-of-taxpayer-money" width="100%" height="400"></iframe>
<p>Months after rejecting the Commissioner of Competition’s application to challenge the merger between Rogers and Shaw Communications, <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/item/521211/index.do">the Competition Tribunal ordered the commissioner to pay nearly $13 million</a> in costs to Rogers and Shaw.</p>
<p>On Aug. 28, the tribunal ruled that <a href="https://www.cbc.ca/news/business/competition-bureau-pays-rogers-shaw-1.6951656">the commissioner’s approach to block the merger was “unreasonable</a>,” although the Competition Bureau stands by its decision to challenge it.</p>
<p>Since the costs will be covered by the Competition Bureau’s tax-funded budget, <a href="https://www.theglobeandmail.com/business/commentary/article-competition-bureau-needs-to-move-back-to-real-world-after-rogers/">some think the commissioner was wrong to challenge the merger</a>. They argue the tribunal’s decision shows that Commissioner Matthew Boswell’s approach is ineffective and should be abandoned.</p>
<p>However, this interpretation is incorrect. Awarding costs is not an indictment of the losing party. Typically in cases like this, the winner receives some compensation for the expenses they incurred while presenting their case. The losing party is required to make a reasonable contribution to the winning party’s costs, but the amount imposed cannot be excessive or punitive. </p>
<p>The costs merely reflect the reality of litigation. Since winners typically get some of their legal costs covered, it was never a question of whether Rogers and Shaw would be awarded compensation, but how much.</p>
<h2>How costs are calculated</h2>
<p>In competition cases, the <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/item/521146/index.do">tribunal has the final say on costs</a>. Parties are strongly encouraged <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/item/521161/index.do">to agree on what the winning party should receive before the outcome of the case is known</a>. </p>
<p>When an agreement cannot be reached, like in the Rogers-Shaw case, the tribunal looks at the claims made by each side and makes a decision <a href="https://laws-lois.justice.gc.ca/eng/regulations/sor-98-106/page-22.html#h-1015878">using the principles and rules applied in the federal courts</a>. </p>
<p>Coming to a final number is not an exact science. Besides which side wins, several factors play into deciding how much is appropriate. </p>
<p>In the Rogers-Shaw case, the tribunal recognized the public interest in the litigation, but noted the commissioner did not prevail on any of the issues. The tribunal also rejected most of the commissioner’s arguments that the cost claims were excessive.</p>
<p>It’s worth noting that this case was expensive for both sides, and their cost claims were relatively similar. Though Rogers-Shaw claimed a higher amount, the commissioner <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/item/521166/index.do">would have sought $10.9 million</a> had he won the case.</p>
<p>To better understand the tribunal’s decision we need to distinguish between two categories of costs: disbursements and legal fees. Disbursements are specific expenses incurred to prepare a case, like hiring experts, or document management. </p>
<p>If a disbursement is reasonable, necessary and justified, there is less scope to reduce expense amounts. In the Rogers-Shaw case, all but two disbursement claims were accepted as reasonable.</p>
<p>Claims for legal fees are different. Courts have rules and tables — called tariffs — that standardize how to calculate costs while accounting for factors like case type, complexity and, when relevant, how the parties behaved during the case.</p>
<p>Since tariffs have not kept pace with increasing legal costs, it has become more common for amounts to be calculated as a percentage of actual fees. Regardless of the method used, however, the reimbursement is meant to cover only some of the actual legal fees incurred. </p>
<h2>The tribunal’s decision</h2>
<p>In the Rogers-Shaw case, the main issue was the proportion of legal fees the commissioner should pay. Rogers and Shaw argued elevated legal fees — above what would normally be awarded — were justified, given the commissioner’s persistence in challenging the <a href="https://www.thestar.com/business/the-26-billion-rogers-shaw-deal-a-timeline-of-key-events/article_ea5c8358-e6cd-5714-b3ad-178f4e7e491f.html">original deal that proposed Rogers buy all of Shaw</a>, rather than focusing on the updated deal that saw Quebecor’s Videotron buy Freedom Mobile from Rogers. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/rogers-shaw-case-unexpectedly-rewrote-merger-law-but-theres-still-time-to-change-that-197188">Rogers-Shaw case unexpectedly rewrote merger law, but there's still time to change that</a>
</strong>
</em>
</p>
<hr>
<p>The tribunal agreed this was an appropriate consequence for the commissioner’s refusal to adjust his strategy during the hearing — especially in the face of strong hints from the tribunal to do so — since it increased the costs and time it took to conclude the case.</p>
<p>However, it’s important to put this part of the tribunal’s decision in perspective. Its impact on the $13 million total was very small, since the vast majority (about 94 per cent) of it was for disbursements, not legal fees.</p>
<p>The tribunal also chose to impose the lower of two estimates that Rogers and Shaw proposed. Keen to avoid imposing costs at a level that could deter the commissioner from taking future responsible cases, it imposed an amount using the applicable tariff ($414,720 to Rogers and $416,187 to Shaw) — much lower than the 25 per cent of actual legal costs ($1.9 million for Rogers and $2.4 million for Shaw) that Rogers and Shaw wanted.</p>
<p>More crucially, the tribunal made it clear that even though it believed the commissioner should have adapted its trial strategy after the Freedom part of the deal was announced, it recognized that the strategy was connected to the commissioner’s unsuccessful position on a novel legal point.</p>
<blockquote>
<p>“It was by no means vexatious or irresponsible of him to [continue to pursue the case]. It raised some novel issues, and there was a broad public interest in bringing the case.”</p>
</blockquote>
<p>This judicial acknowledgement refutes the claim that challenging the merger was a mistake and a waste of time and taxpayer money.</p>
<h2>Contested cases are uncertain</h2>
<p>Enforcement agencies like the Competition Bureau have a duty to pursue cases they consider to be well-founded and in the public interest. But it’s unrealistic to expect they will win every time. Fighting uphill battles that require sophisticated arguments, or test new theories, are part of the job. </p>
<p>The bureau can sow the seeds of future successes and point out where reform is needed. One prominent example is the <a href="https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/14603/index.do">2015 Tervita case</a> in which the Supreme Court rejected the commissioner’s interpretation of the efficiencies defence, which allows a merger to proceed if the cost savings outweigh the negative impacts on competition. </p>
<p>The court’s decision <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy/future-competition-policy-canada#IV">became the subject of much debate</a> and the federal government <a href="https://www.pm.gc.ca/en/news/news-releases/2023/09/14/fighting-for-the-middle-class">announced on Sept. 14 they will amend the act</a> to remove the defence.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/supreme-court-ruling-makes-need-for-competition-act-reform-urgent-89985">Supreme Court ruling makes need for Competition Act reform urgent</a>
</strong>
</em>
</p>
<hr>
<p>Given this context, it’s worrying that the cost order in the Rogers-Shaw case is being portrayed as an indictment of the <a href="https://financialpost.com/feature/matthew-boswell-ballsy-bureaucrat-block-rogers-shaw">vigorous enforcement and outspoken advocacy that has characterized Boswell’s tenure</a>.</p>
<p>This criticism comes at a crucial juncture. A long overdue <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy">modernization of competition law</a>, of which Boswell is a champion, is underway. A recent <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy/making-competition-work-canadians-consultation-future-competition-policy-canada">public consultation</a> shows <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy/submissions-consultation-future-competition-policy-canada">a broad spectrum of individuals and groups are interested in reform</a>. </p>
<p>Since Boswell’s term ends in March 2024, the choice of his successor, who will take on the reins of our competition enforcement agency midway through the reform process, will be consequential. As people assess whether Boswell’s legacy should be continued, it’s important to base it on more than a few misunderstood lines in a judgment.</p><img src="https://counter.theconversation.com/content/213053/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennifer Quaid holds research grants from the Social Sciences Research Council of Canada. She is a Senior Fellow at the Centre for International Governance Innovation. She is a member of Transparency International Canada and the Chair of its Legal Committee. </span></em></p>Enforcement agencies like the Competition Bureau have a duty to pursue cases they consider to be well-founded and in the public interest. But it’s unrealistic to expect they will win every time.Jennifer Quaid, Associate Professor & Vice-Dean Research, Civil Law Section, Faculty of Law, L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2093082023-07-16T11:57:05Z2023-07-16T11:57:05ZIncreasing monopoly power poses a threat to Canada’s post-pandemic economic recovery<figure><img src="https://images.theconversation.com/files/537149/original/file-20230712-21301-q8sobd.jpg?ixlib=rb-1.1.0&rect=282%2C0%2C3414%2C1912&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A recent report from Canada's competition watchdog found that a lack of competition in the grocery sector has led to higher prices for consumers.</span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Graeme Roy</span></span></figcaption></figure><p>Canada is currently grappling with a significant economic issue: <a href="https://dx.doi.org/10.2139/ssrn.3357041">market concentration</a>. A select few corporations dominate key sectors, <a href="https://www.canada.ca/en/competition-bureau/news/2023/05/canadas-competition-moment-is-here-lets-seize-it.html">leading to reduced competition</a>, rising prices and limited purchase options for consumers.</p>
<p>Canada’s grocery industry is a prime example of this. A recent <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/canada-needs-more-grocery-competition">report from the Competition Bureau</a> found that a lack of competition in the grocery sector is resulting in higher food prices. </p>
<p>The grocery industry is dominated by five major players — Loblaws, Metro, Empire (the owner of Sobeys), Walmart and Costco. These five companies <a href="https://www.cbc.ca/news/business/competition-bureau-grocery-1.6889712">account for over three-quarters of all food sales</a> in Canada.</p>
<p>The Bureau <a href="https://www.thestar.com/business/2023/06/27/what-the-grocery-report-recommends-to-improve-competition.html">recommended four policies to encourage competition</a> in the sector. These include establishing a grocery innovation strategy, encouraging new independent and international players, introducing legislation for consistent unit pricing and limiting property controls.</p>
<p>While independent grocery chains could be a viable alternative, they don’t occupy as large a presence of the market as they do in other countries. The <a href="https://globalnews.ca/news/9796699/competition-bureau-canada-grocery-study-takeaways">Canadian grocery market is heavily concentrated</a> and limits the ability of independent chains to compete by forcing them to purchase their products from larger chains.</p>
<h2>History of monopolies</h2>
<figure class="align-right ">
<img alt="A brass Hudson's Bay Company logo seen outside one of its stores" src="https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=385&fit=crop&dpr=1 600w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=385&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=385&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=484&fit=crop&dpr=1 754w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=484&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/537152/original/file-20230712-17-qpvwhi.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=484&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The Hudson’s Bay Company was granted a commercial monopoly over the entire Hudson Bay drainage basin, known as Rupert’s Land, in 1670.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Nathan Denette</span></span>
</figcaption>
</figure>
<p>Canada’s economy has historically been marked by notable monopolies, thanks to its vast geographical expanse and relatively sparse population. </p>
<p>Entities like the <a href="https://canadiangeographic.ca/articles/the-untold-story-of-the-hudsons-bay-company/">Hudson’s Bay Company</a> and <a href="https://www.thecanadianencyclopedia.ca/en/article/canadian-pacific-railway">Canadian Pacific Railway company</a> played significant roles in the country’s development. This largely happened out of concern that domestic companies would be overwhelmed by American competitors unless they grew significantly.</p>
<p>Recent trends indicate this phenomenon is not only persisting, but intensifying. While <a href="https://www.cpacanada.ca/en/news/pivot-magazine/canadian-business-monopolies">Sobeys, Loblaws, Metro, Costco and Walmart dominate</a> over 60 per cent of the grocery sector, Bell, Rogers and Telus command about 89 per cent of the wireless telecommunications market.</p>
<p>The concentration of power extends beyond these sectors. <a href="https://globalnews.ca/news/9634933/canada-big-banks-analysis/">The banking industry in Canada is dominated by six banks</a> — the Royal Bank of Canada, TD Bank, Scotiabank, the Bank of Montreal, CIBC and National Bank, which collectively control about 93 per cent of the industry.</p>
<p>Similarly, <a href="https://www.statista.com/statistics/339828/market-share-of-the-canadian-brewing-industry/">the beer market is largely controlled by two multinational giants</a>, Anheuser-Busch InBev and Molson Coors.</p>
<p>And the Canadian telecommunications industry is still reeling from the recent <a href="https://www.reuters.com/markets/deals/canadas-decision-rogers-shaw-deal-may-come-friday-2023-03-31/">merger between two of the industry’s giants</a>, Rogers Communications and Shaw Communications. The implications of this deal are far-reaching.</p>
<h2>The Rogers-Shaw merger</h2>
<p>The Rogers-Shaw merger’s final approval came with <a href="https://www.cbc.ca/news/business/rogers-shaw-approval-1.6797175">21 enforceable conditions</a> Rogers and Videotron must adhere to, aimed at bolstering competition and reducing costs for customers. </p>
<p>The merger’s approval depended on Shaw selling its Freedom Mobile business to Quebecor’s Videotron. If Rogers breaches its conditions, it must pay up to $1 billion in damages. Videotron could be subject to $200 million in penalties if it fails to meet its commitments. </p>
<figure class="align-center ">
<img alt="A man holds up a sheet of paperwork as he speaks into a microphone attached to a podium" src="https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/537150/original/file-20230712-26-ztwm9r.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Innovation, Science and Industry Minister François-Philippe Champagne holds up a contract between the telecoms and the federal government as he speaks at a news conference about the Rogers-Shaw merger on Parliament Hill in Ottawa on March 31, 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/ Patrick Doyle</span></span>
</figcaption>
</figure>
<p>Despite these conditions, <a href="https://www.cbc.ca/news/business/rogers-shaw-merger-official-1.6799566">some remain skeptical about the impact of the merger</a> on competition in Canada’s telecommunications sector. </p>
<p><a href="https://globalnews.ca/news/9597898/rogers-shaw-merger-closes-new-telecom-giant/">Some critics have argued</a> the merger may lead to higher prices for consumers and less innovation. Carleton University political economy professor Dwayne Winseck warned it could lead to a “<a href="https://twitter.com/mediamorphis/status/1372207252363489290">tight oligopoly on steroids</a>.”</p>
<p>On the flip side, <a href="https://www.cbc.ca/news/business/rogers-shaw-internet-deal-1.5950727">other experts believe the merger could benefit consumers</a> by accelerating the rollout of 5G networks and improving infrastructure and services, particularly in rural areas.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/heres-how-the-rogers-shaw-merger-could-benefit-canadian-customers-201132">Here's how the Rogers-Shaw merger could benefit Canadian customers</a>
</strong>
</em>
</p>
<hr>
<p>However, these benefits could be offset by the potential for higher prices and less competition. The merger could lead to a dominant market share in Ontario, reducing competition and potentially leading to higher internet prices.</p>
<p>This is particularly concerning, given Ontario’s average monthly price of home internet services is <a href="https://www.cannettel.com/blog/rogers-shaw-merger-implications-internet-prices-ontario">already higher than the national average</a>. This situation underscores the need for a revamp of Canada’s competition laws.</p>
<h2>Loopholes in competition law</h2>
<p>The merger has sparked controversy because it exploited weaknesses in Canada’s anti-monopoly law, <a href="https://laws-lois.justice.gc.ca/eng/acts/c-34/fulltext.html">the Competition Act</a>, to push the deal through. </p>
<p>The Competition Act has been <a href="https://www.wealthsimple.com/en-ca/magazine/canada-monopolies">criticized for failing to prevent acquisitions</a> that allow large firms to eliminate competitive threats and solidify their dominance.</p>
<p>As Canada’s competition watchdog, the Competition Bureau can review mergers to determine if they will be harmful to competition. But since its introduction in 1986, <a href="https://www.cigionline.org/publications/merger-policy-for-a-dynamic-and-digital-canadian-economy/">the bureau has only challenged 18 mergers</a> and has never won a challenge on final judgment.</p>
<p>The law also has a high bar for intervention in a merger, <a href="https://globalnews.ca/news/9169363/merger-laws-canada-competition/">often favouring negotiated agreements</a> that include concessions or remedies that address some of the competition concerns, but not necessarily all.</p>
<p>The Competition Commissioner, Matthew Boswell, <a href="https://financialpost.com/feature/matthew-boswell-ballsy-bureaucrat-block-rogers-shaw">believes the existing competition laws are inadequate</a>. Boswell has been hamstrung by legal loopholes and unable to prevent anti-competitive mergers, like the Rogers-Shaw deal, from happening.</p>
<h2>Challenges and opportunities</h2>
<p>Along with rising consumer prices, limited purchase options and intensifying competition, the growth of monopolies in Canada has led to a host of other issues.</p>
<p>Monopolies have <a href="https://policyoptions.irpp.org/magazines/february-2022/competition-hurts-innovation-canada">the potential to stifle innovation</a> — a key driver of economic growth, as a lack of competition tends to dampen innovative efforts. Productivity growth, which is crucial for improving living standards, <a href="https://policyoptions.irpp.org/magazines/april-2023/the-low-productivity-of-canadian-companies-threatens-our-living-standards/">is also under threat</a>, as monopolies can create an environment less conducive to efficiency and progress.</p>
<p>As Canada embarks on its post-pandemic economic recovery, policymakers must ensure economic resilience and inclusiveness while preventing existing monopoly issues from worsening. </p>
<p>At the same time, there is an opportunity to reshape the economic landscape to encourage competition and foster innovation, benefiting everyone involved in the market.</p>
<p>This journey towards a more prosperous future will require rigorous scrutiny of developments like the proposed Rogers-Shaw merger and the wisdom to navigate the interplay of monopolies, competition and the broader economy.</p><img src="https://counter.theconversation.com/content/209308/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Garros Gong does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>As Canada embarks on its post-pandemic economic recovery, policymakers must ensure economic resilience and inclusiveness while preventing existing monopoly issues from worsening.Garros Gong, Ph.D. Student in Management Science, University of WaterlooLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2067162023-05-31T16:33:23Z2023-05-31T16:33:23ZDebate: The end of the internal-combustion car: why competition is vital to bringing about cleaner transport<figure><img src="https://images.theconversation.com/files/529318/original/file-20230531-23-4sp91i.jpeg?ixlib=rb-1.1.0&rect=0%2C14%2C1920%2C1063&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Economic studies have a record of showing competition favour innovation. </span> <span class="attribution"><a class="source" href="https://www.pxfuel.com/en/free-photo-xfbsg">Pxfuel.com</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>On 7 March 2023, just as the European Council was preparing to vote on a ban on the sale of new internal combustion engine cars in Europe from 2035, something went wrong: Germany, whose vote was essential for the measure to be approved, and a coalition of six other European countries <a href="https://edition.cnn.com/2023/03/24/cars/eu-combustion-engine-debate-climate-intl/index.html">blocked the vote on the text</a>, pushing the legislation back indefinitely.</p>
<p>A few days later, the European Commission, representing all the member countries, unveiled its response to the US Inflation Reduction Act (IRA), the <a href="https://single-market-economy.ec.europa.eu/publications/net-zero-industry-act_en">Net-Zero Industry Act</a>, a competitiveness plan based on accelerating the green transition.</p>
<p>Amid all the political back-and-forths, one would be forgiven for asking oneself whether Europe is making any progress with the green transition. It would appear the <a href="https://theconversation.com/fr/topics/union-europeenne-ue-20281">European Union</a> (EU) has become Janus, with a pro-transition face and a procrastinating face, just as a pro-competition face contrasts with a protectionist face. The consequence of such contradictions is a loss of credibility when it comes to achieving its objectives, and a delay in the race toward ecological transition.</p>
<h2>A lead to maintain</h2>
<p>Yet the EU seemed well on the way to establishing itself as a world leader in the transition, with its dynamic green ecosystem made up of innovative businesses supported by the “European Climate Bank”, as the EIB (European Investment Bank) likes to call itself. At the end of February, the EIB reaffirmed its intention to <a href="https://www.eib.org/fr/press/all/2023-077-eib-group-forum-president-hoyer-signals-readiness-to-boost-green-energy-finance-in-support-of-eu-autonomy-competitiveness">champion green initiatives</a> by channelling the vast majority of its funds toward the transition, beyond the already honourable level of 60% achieved by 2022.</p>
<p>The EU also seems to be particularly ahead of the game on green hydrogen, boasting a number of <a href="https://competition-policy.ec.europa.eu/state-aid/legislation/modernisation/ipcei_en">important projects of European interest</a> (IPCEI), the <a href="https://www.h2-mobile.fr/actus/hydrogene-europe-domine-production-mondiale-brevets/">world’s leading number of patents</a> (ranking last January by the International Energy Agency) and an embryonic <a href="https://www.eesc.europa.eu/en/our-work/opinions-information-reports/opinions/eu-hydrogen-bank">hydrogen bank</a>.</p>
<p><a href="https://fr.statista.com/infographie/29123/production-hydrogene-nombre-de-depots-de-brevets-par-pays-ou-region/" title="Hydrogen production: Europe leads the race for patents"><img src="https://cdn.statcdn.com/Infographic/images/normal/29123.jpeg" alt="Hydrogen production: Europe leads the race for patents" width="100%" height="auto"></a></p>
<p><em>You can find more infographics at <a href="https://fr.statista.com/graphique-du-jour/">Statista</a>.</em></p>
<p>This position is confirmed by foreign investors who find themselves attracted to the bloc’s green policies and regulatory clout. Take the latest <a href="https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en">Border Carbon Tax Mechanism</a> (CBAM), which is set to place a carbon price on imports entering the European single market from non-EU countries from this autumn: It is a textbook example of how to take into account negative ecological impacts while respecting competition thanks to the price signal. The recent revaluation of the price of a tonne of CO<sub>2</sub> above 100 euros suggests that it will be very effective indeed.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1628580170948018176"}"></div></p>
<p>That’s if we don’t undermine it with exemptions and deferrals <em>sine die</em>, or disguised pollution subsidies such as France’s energy <a href="https://www.service-public.fr/particuliers/actualites/A15944?lang=en">“tariff shield”</a>). According to the IEA, Europe spent nearly <a href="https://www.iea.org/reports/fossil-fuels-consumption-subsidies-2022">350 billion euros</a> on such measures in 2022 - a record high.</p>
<p>To give businesses and investors the certainty that the EU won’t be going backwards, we need to set clear, consistent targets and stick to them. It is essential to anchor players’ expectations on a fixed and certain horizon so that markets can be challenged, competition can be triggered, and private investment can flow. Any form of renunciation by the EU will discourage players from speeding up the transition and will cause those who were ahead of schedule in reaching the 2035 horizon to backpedal.</p>
<h2>Avoiding “the tragedy of the horizon”</h2>
<p>To remain competitive, French carmaker Renault has focused its clean-car strategy on its <a href="https://www.usinenouvelle.com/article/a-quoi-ressemblera-le-pole-electricity-de-renault-dans-les-hauts-de-france.N1112619">electricity division</a> and split its activities into <a href="https://www.agefi.fr/news/entreprises/renault-se-reorganise-en-cinq-poles">five divisions</a> – Ampere (clean vehiciles), Power (thermal and hybrid motors), Alpine (sport), Mobilize (new forms of mobility) and The Future Is Neutral (circular economy). Power is intended to be supported in part by the profits from the project “Horse”, which involves a joint venture with the Chinese carmaker Geely.</p>
<p>Stellantis – the parent company of Chrysler as well as European brands such as Peugeot, Citroën, Fiat and and Alfa Romeo – has also positioned itself in the premium segment of the clean-car market, alongside other players such as Tesla of the US and French energy giant TotalEnergies, which is equipping its service station network with recharging stations. These moves demonstrate the decisive role of competition in developing a range of products and services in line with the imperatives of the energy transition.</p>
<p>[<em>More than 85,000 readers look to The Conversation France’s newsletter for expert insights into the world’s most pressing issues</em>. <a href="https://memberservices.theconversation.com/newsletters/?nl=france&region=fr">Sign up now</a>]</p>
<p><a href="https://www.alternatives-economiques.fr/dictionnaire/definition/97466">Open markets</a> allow new players to join or withdraw on terms that suit them, thus fostering competition and innovation. This virtuous circle is essential to overcoming the technological frontier of transition – the most advanced level of research at a given time – and get a jump on tomorrow’s solutions. In <a href="https://www.jstor.org/stable/3502156">theory</a>, an economy that’s open to competition leads to sophistication in the value proposition of offerings and to <a href="https://www.lesechos.fr/2004/01/marche-contestable-1060294">shared value for all</a>: quality of service and lower prices to the benefit of demand greater returns on innovation and scale and attraction of scarce resources to the benefit of supply.</p>
<p>The longer the European Union postpones its objectives and gives in to protectionist pressures, the longer it will be locked into what former Canadian central banker Marc Carney has called the <a href="https://www.bankofengland.co.uk/speech/2015/breaking-the-tragedy-of-the-horizon-climate-change-and-financial-stability">tragedy of the horizon</a>, and so the more it will fall behind its rivals. The EU would benefit from remaining consistent with its founding principle of competition and its <a href="https://institutdelors.eu/wp-content/uploads/2018/01/171024jdigrundfreiheitenenwebeinzelseitena4.pdf">four fundamental freedoms</a> (movement of goods, capital, services and people) to attract the capital needed for the transition and the infrastructure essential for its spread (such as electric charging stations) and acceptability.</p>
<p>At a time when the United States has strayed into protectionism, the EU must stand firm on its commitments and remain faithful to competition, the virtues of which will accelerate the transition and its spread with accessible solutions. It’s time to move on from <a href="https://www.gfmag.com/magazine/january-2023/nouriel-roubini-interview">“greenwishing”</a>, as the American economist Nouriel Roubini called it ironically, to <em>green-enacting</em> thanks to a winning combination of <a href="https://competition-policy.ec.europa.eu/consumers/why-competition-policy-important-consumers_fr">competitiveness and attractiveness</a>.</p><img src="https://counter.theconversation.com/content/206716/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Les auteurs ne travaillent pas, ne conseillent pas, ne possèdent pas de parts, ne reçoivent pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'ont déclaré aucune autre affiliation que leur organisme de recherche.</span></em></p>Faced with a Germany-led coalition seeking to ban internal-combustion-engine car sales from 2035, the EU needs to stay firm on its core economic principles.Anna Souakri, Affiliate Professor in Strategy/Innovation & Researcher at Square Management, ESCP Business SchoolJean-Marc Daniel, Emeritus associate Professor, Law Economics & Humanities, ESCP Business SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2046982023-05-03T15:17:24Z2023-05-03T15:17:24ZWhy post-Brexit Britain is still open for business – despite what Microsoft says<figure><img src="https://images.theconversation.com/files/523856/original/file-20230502-14-5dm53n.jpg?ixlib=rb-1.1.0&rect=385%2C120%2C4686%2C3226&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/business-open-usual-yellow-sign-stating-1676582434">lookslikephoto.com/Shutterstock</a></span></figcaption></figure><p>The UK’s ability to attract business has recently been called into question after <a href="https://www.gov.uk/government/news/microsoft-activision-deal-prevented-to-protect-innovation-and-choice-in-cloud-gaming">its competition regulator blocked</a> tech giant Microsoft from <a href="https://www.bbc.co.uk/news/business-65407005">buying</a> gaming firm Activision for US$68.7 billion (£55 billion). </p>
<p>Microsoft’s president not only said this decision was “<a href="https://www.bbc.co.uk/news/business-65407005">bad for Britain</a>”, but that the “the European Union is a more attractive place to start a business than the United Kingdom”. A spokesperson for Activision <a href="https://www.theguardian.com/technology/2023/apr/26/microsoft-bid-for-activision-blizzard-blocked-by-uk-competition-regulator#:%7E:text=the%20UK%20is%20clearly%20closed%20for%20business">suggested</a>: “The UK is clearly closed for business.”</p>
<p>The UK is not a difficult place to do business, although there are ways it could become more attractive, particularly post-Brexit. As such, there is more to this story than meets the eye.</p>
<p>The decision ties in with wider efforts by UK regulators to examine and adjust such significant deals to prevent them from reducing competition in key industries.</p>
<p>The head of the panel that examined this deal for the <a href="https://www.gov.uk/government/organisations/competition-and-markets-authority/about">Competition & Markets Authority</a> (CMA) said of its decision:</p>
<blockquote>
<p>Cloud gaming needs a free, competitive market to drive innovation and choice. That is best achieved by allowing the current competitive dynamics in cloud gaming to continue to do their job.</p>
</blockquote>
<h2>Regulators are right to be cautious</h2>
<p>The UK is the first of three regions to announce a decision on the Microsoft deal – and none of the national regulators involved seem likely to give the green light easily. The US Federal Trade Commission has already launched a legal challenge to <a href="https://www.abc.net.au/news/2022-12-09/ftc-sues-derail-microsoft-activision-blizzard-merger/101754236">block the takeover</a>, while in March, <a href="https://www.bloomberg.com/news/articles/2023-03-17/microsoft-activision-eu-review-extended-after-remedies-offer#xj4y7vzkg">EU regulators delayed</a> their decision until May 22.</p>
<p>Regulators are right to be cautious. They often analyse competition in a sector using measures such as the Herfindahl–Hirschman Index (<a href="https://www.justice.gov/atr/herfindahl-hirschman-index">HHI</a>). This calculates the degree of competitive control in an industry by squaring each company’s market share and adding up the results. </p>
<p>A market with an HHI of less than 1,500 is considered a competitive marketplace, 1,500 to 2,500 is moderately concentrated, and over 2,500 is highly concentrated. The maximum 10,000 points denotes a market controlled by a single firm. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/tech-firms-face-more-regulation-after-moves-to-stop-killer-acquisitions-but-innovation-could-also-be-under-threat-187278">Tech firms face more regulation after moves to stop 'killer' acquisitions – but innovation could also be under threat</a>
</strong>
</em>
</p>
<hr>
<p>The HHI for the cloud gaming sector is already around 3,600, and the CMA says Microsoft accounts for <a href="https://www.gov.uk/government/news/microsoft-activision-deal-prevented-to-protect-innovation-and-choice-in-cloud-gaming">60-70%</a> of the sector’s global services. So, if the deal went through, the HHI would increase significantly in Microsoft’s favour.</p>
<p>It is the <a href="https://www.gov.uk/government/organisations/competition-and-markets-authority/about">CMA’s responsibility</a> to investigate deals with the potential to affect the competitiveness of UK markets. This is an important role because openness and competition help more firms thrive, boosting innovation and productivity. <a href="https://competition-policy.ec.europa.eu/consumers/why-competition-policy-important-consumers_en">Consumers also benefit</a> from lower prices and a more comprehensive range of goods and services.</p>
<p>However, putting the breaks on such a high-profile deal will affect how companies and investors view a country’s attitude to business.</p>
<h2>How open is the UK?</h2>
<p>By some measures, the UK is a highly rated <a href="https://www.bayes.city.ac.uk/__data/assets/pdf_file/0010/689482/MA_Attractiveness-Index_2021.pdf">investment destination</a>. Other measures tell investors and companies how easy it is to do business in a country. For example, China’s <a href="https://www.ciie.org/resource/upload/zbh/202211/281044112s1b.pdf">World Openness Index</a>, which measures cross-border economic, social and cultural factors, ranked the UK tenth in 2020 (its latest report) – although this was down from fifth in 2008. </p>
<p><strong>Perceiving countries as ‘open for business’</strong></p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/523468/original/file-20230428-24-n4nxfs.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523468/original/file-20230428-24-n4nxfs.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=350&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523468/original/file-20230428-24-n4nxfs.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=350&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523468/original/file-20230428-24-n4nxfs.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=350&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523468/original/file-20230428-24-n4nxfs.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=440&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523468/original/file-20230428-24-n4nxfs.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=440&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523468/original/file-20230428-24-n4nxfs.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=440&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">World Openness Index.</span>
<span class="attribution"><a class="source" href="https://www.ciie.org/resource/upload/zbh/202211/281044112s1b.pdf">Author provided using data from China International Import Expo</a></span>
</figcaption>
</figure>
<p>More recent research from the <a href="https://economy2030.resolutionfoundation.org/reports/open-for-business/#:%7E:text=After%20trade%20was%20adjusted%20for,in%202022%20than%20in%202021.">Resolution Foundation</a> shows UK openness improved relative to France and the US between 2021 and 2022, but the authors added: “We should be cautious in assuming this indicates the UK has become more competitive in recent months despite Brexit.” </p>
<p>So has Brexit damaged the UK’s openness? <a href="https://www.ig.com/uk/financial-events/brexit/pros-and-cons-of-brexit">One argument</a> for remaining in the EU was that membership provided unrestricted access to the European single market, enabling easy movement of goods, services and people across member states. </p>
<p>On the <a href="https://www.debatingeurope.eu/focus/arguments-britain-leaving-eu/#.ZEv1L3bMI2w">other hand</a>, those wanting to leave the EU <a href="https://www.vox.com/2016/6/22/11992106/brexit-arguments">argued</a> it stopped Britain from fully capitalising on trade with other major economies such as Japan and the US, or <a href="https://www.thebalancemoney.com/what-are-the-next-eleven-1978980">other</a> <a href="https://asean.org/">emerging</a> <a href="https://www.bloomberg.com/news/articles/2023-04-24/brics-draws-membership-requests-from-19-nations-before-summit">economies</a>. </p>
<p>I’ve worked with academics at other UK universities to <a href="https://www.sciencedirect.com/science/article/abs/pii/S026427512100305X">review how UK cities and regions</a> attract investment and talent by using data and technology to create development opportunities and enhance quality of life. According to our review, the UK has a lot going for it in this respect, <a href="https://www.great.gov.uk/international/content/investment/why-invest-in-the-uk/">including</a> an educated workforce, a mature and high-spending consumer market, a business-friendly regulatory and tax environment, and an open, liberal economy.</p>
<p>Brexit <a href="https://rsaiconnect.onlinelibrary.wiley.com/doi/full/10.1111/pirs.12345">could make the UK worse off</a> by increasing red tape for firms that trade with the EU, <a href="https://cep.lse.ac.uk/pubs/download/brexit03.pdf">reducing</a> trade and investment flows. This could <a href="https://www.sussex.ac.uk/broadcast/read/60376">increase costs and supply shortages</a>), on top of reducing access to skilled EU workers. But the changing nature of the UK’s post-Brexit economic relations with all economies, not just the EU, is important. </p>
<figure class="align-center ">
<img alt="Cargo ship and Cargo plane with working crane bridge in shipyard" src="https://images.theconversation.com/files/523857/original/file-20230502-1462-n1c8jz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/523857/original/file-20230502-1462-n1c8jz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/523857/original/file-20230502-1462-n1c8jz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/523857/original/file-20230502-1462-n1c8jz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/523857/original/file-20230502-1462-n1c8jz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/523857/original/file-20230502-1462-n1c8jz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/523857/original/file-20230502-1462-n1c8jz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Many businesses in Britain rely on international trade deals and investment by foreign companies.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/logistics-transportation-container-cargo-ship-plane-526625740">Travel mania/Shutterstock</a></span>
</figcaption>
</figure>
<h2>A new global reputation?</h2>
<p>The UK’s reputation for openness has clearly been damaged by Brexit. It has led to <a href="https://edition.cnn.com/2022/12/24/economy/brexit-uk-economy/index.html">barriers</a> for UK businesses that trade with the EU, and also for foreign companies that used Britain as a European base.</p>
<p>The country now needs to build a new <a href="https://www.ft.com/content/58e884a1-d642-40e0-af72-4073b11673bf">global reputation</a>, independent of EU membership. A good first step would be to improve perceptions about its openness by pursuing cooperation with the EU, alongside trade opportunities with non-EU countries. </p>
<p>To assist with the latter, the UK can take advantage of its freedom from the EU to enact policies that make it a <a href="https://www.bbc.co.uk/news/explainers-53724381">more attractive</a> place to do business for <a href="https://www2.deloitte.com/uk/en/pages/technology/articles/how-to-make-the-uk-a-more-attractive-listing-location-for-tech-businesses.html">technology firms</a> than when it was as an EU member. This could include government subsidies and investment to encourage innovation in this sector, as well as ways to help companies address skills shortages.</p>
<p>Firms that do not get their way on deals in the UK’s post-Brexit business environment may try to insinuate that the UK is now less open. But, while being open for business is good for the economy, the CMA is also responsible for considering the interests of British customers, businesses and talent when it makes decisions on deals. This will also help ensure the UK remains a good place to do business.</p><img src="https://counter.theconversation.com/content/204698/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tolu Olarewaju does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The UK must refocus its efforts to attract investment post-Brexit, but here’s why it’s still ‘open for business’.Tolu Olarewaju, Economist and Lecturer in Management, Keele UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1971882023-03-12T12:42:56Z2023-03-12T12:42:56ZRogers-Shaw case unexpectedly rewrote merger law, but there’s still time to change that<figure><img src="https://images.theconversation.com/files/514049/original/file-20230307-2497-ocsgvb.JPG?ixlib=rb-1.1.0&rect=338%2C287%2C4073%2C2710&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The Rogers-Shaw deal is the largest merger to be challenged before the Competition Tribunal. </span> <span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span></figcaption></figure><p>Nearly two years after it was announced, the <a href="https://www.globenewswire.com/news-release/2021/03/15/2192622/0/en/Rogers-and-Shaw-to-come-together-in-26-billion-transaction-creating-new-jobs-and-investment-in-Western-Canada-and-accelerating-Canada-s-5G-rollout.html">$26-billion takeover</a> of Shaw Communications by Rogers Communications remains in the news — and in a state of limbo.</p>
<p>Rogers and Shaw have pushed the <a href="https://www.cbc.ca/news/business/rogers-shaw-deadline-extended-march-31-1.6751886">closing date of the deal</a> to March 31 as they wait for Canada’s Minister of Innovation François-Philippe Champagne to approve the transfer of wireless spectrum licences from Shaw to Quebecor’s Videotron subsidiary.</p>
<p>Champagne is in a <a href="https://www.bnnbloomberg.ca/rogers-shaw-takeover-expert-says-industry-minister-likely-mulling-optics-of-approval-1.1888729">delicate position</a>. Ever since the Competition Tribunal <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/521175/1/document.do">rejected the Commissioner of Competition’s application to block the deal</a> on Jan. 24, 2023, opponents of the deal have urged Champagne to override the tribunal decision.</p>
<p>Regardless of what Champagne decides, the tribunal decision — endorsed by the Federal Court of Appeal — has created a new rule that raises significant questions about merger review going forward.</p>
<p>With a <a href="https://ised-isde.canada.ca/site/strategic-policy-sector/en/marketplace-framework-policy/competition-policy/consultation-future-competition-policy-canada">consultation on the future of competition policy in Canada</a> underway, it is vital to seize the opportunity to correct a problematic new precedent.</p>
<h2>Implications for merger law</h2>
<p>Most experts thought <a href="https://www.theglobeandmail.com/business/article-with-shaw-deal-competition-monitor-airs-views-on-corporate-vs-consumer/">the Rogers-Shaw case would focus on</a> the controversial efficiencies defence, which has been a <a href="https://www.theglobeandmail.com/business/article-the-takeover-law-that-has-bay-street-rattled-complicating-the-rogers/">primary target for reform</a>.</p>
<p>Unique to Canada, the efficiencies defence allows a merger to proceed if economic efficiencies, such as cutting staff and combining business units, are sufficient to compensate for the higher prices and less consumer choice caused by the merger.</p>
<p>In the end, there was no need to consider whether the efficiencies would compensate for any anti-competitive effects, since the tribunal dismissed the application. The tribunal was unconvinced the merger would negatively affect competition for wireless services in British Columbia and Alberta.</p>
<figure class="align-center ">
<img alt="A man in a suit gestures while speaking" src="https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=426&fit=crop&dpr=1 600w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=426&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=426&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=535&fit=crop&dpr=1 754w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=535&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/514060/original/file-20230307-22-lm8vq4.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=535&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Innovation, Science and Industry Minister François-Philippe Champagne rises during Question Period in the House of Commons on Parliament Hill in Ottawa in February 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/ Patrick Doyle</span></span>
</figcaption>
</figure>
<p>On the surface, this looks like an open and shut case, but something unprecedented happened — the original deal <a href="https://decisions.ct-tc.gc.ca/ct-tc/cdo/en/item/520922/index.do">challenged by the commissioner in May 2022</a> — a one-step complete takeover of Shaw by Rogers — was replaced by a two-step process, announced in June and <a href="https://corpo.videotron.com/en/pressroom/rogers-shaw-and-quebecor-sign-definitive-agreement-sale-freedom-mobile">finalized in August</a>, in which Rogers would sell Freedom Mobile to Videotron before acquiring Shaw.</p>
<p>Based on its interpretation of the law and applying “common sense,” the tribunal decided the merger review must look at the deal the parties <em>actually intend to do</em>, even though the new deal is the result of a change made after the commissioner started litigation.</p>
<p>The commissioner asked the Federal Court of Appeal to overturn this part of the decision. <a href="https://decisions.fca-caf.gc.ca/fca-caf/decisions/en/item/521096/index.do">The Court refused</a>, saying it would not have changed the outcome of the case because the tribunal had rejected all of the commissioner’s evidence. </p>
<h2>Merger review process</h2>
<p>In Canada, mergers are not subject to formal approval. The purpose of the Competition Bureau’s review of mergers is to identify and resolve problems. </p>
<p>Our merger regime has two parts: <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/merger-review-process-guidelines#s3_4_3">notification</a> and <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/merger-enforcement-guidelines">enforcement</a>. Most merger review happens at the notification stage when <a href="https://www.canada.ca/en/competition-bureau/news/2023/02/pre-merger-notification-transaction-size-threshold-to-remain-at-93m-in-2023.html">the bureau reviews transactions by parties</a> to see if a deal raises competition concerns. </p>
<p>Most of the time, the bureau has none and takes no action. But when cases do raise concerns, the bureau may ask for more information to better understand the impacts of the merger. Usually merging parties have suggestions for how to remedy concerns ahead of time, and the commissioner and the parties can reach a resolution without needing litigation.</p>
<p>Very rarely, the gap between the commissioner and the parties cannot be bridged and the commissioner will challenge the merger. The commissioner can challenge any merger, including <a href="https://laws.justice.gc.ca/eng/acts/C-34/page-16.html#docCont">those completed within the last year</a> or those, like the <a href="https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/14603/index.do">Tervita case</a>, that don’t have to be notified. </p>
<p>The commissioner starts a challenge by applying to the Competition Tribunal for an order to fix the anti-competitive problems caused by the merger. The commissioner must prove the deal will likely cause a “substantial lessening or prevention of competition.” </p>
<p>Once he does that, he must show how his proposed remedy will bring the level of anti-competitive harm below the substantial level.</p>
<p>Parties that propose alternatives to the commissioner’s remedy must convince the tribunal their remedy is adequate and achievable. Sometimes the commissioner and the parties are able to agree on a remedy to settle a contested case. This can then be filed as a <a href="https://ised-isde.canada.ca/site/competition-bureau-canada/en/how-we-foster-competition/education-and-outreach/publications/competition-bureau-mergers-consent-agreement-template">consent agreement</a>, which is binding on both sides.</p>
<h2>Upending the merger review process</h2>
<p>The Rogers-Shaw decision upends the merger review process in two ways. First, allowing post-litigation changes removes the incentive for parties to work with the commissioner to resolve competition issues in the early stages of merger review. </p>
<p>For parties seeking a remedy the commissioner objects to, a late deal change is a way they can propose a remedy. Baking a remedy directly into a deal means the remedy isn’t looked at separately from the overall question of whether the deal is anti-competitive. </p>
<p>This means parties don’t have to show their remedy is likely to work — it’s assumed to. More importantly, since the remedy is not enshrined in a formal tribunal order, there is no legal mechanism to ensure the parties follow through.</p>
<p><a href="https://www.theglobeandmail.com/business/article-quebecor-working-with-federal-government-on-details-of-pledge-to/">Crafting effective alternatives to court orders</a> to ensure parties keep their promises is difficult, as we have seen in the continued delay in the final approval of the Rogers-Shaw deal by Champagne.</p>
<figure class="align-center ">
<img alt="Two men in suits stand before a table with name cards sitting on it" src="https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/514047/original/file-20230307-299-6u6iun.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Tony Staffieri, president and chief executive officer of Rogers Communications Inc., right, and Paul McAleese, president of Shaw Communications Inc., arrive at the Standing Committee on Industry and Technology investigating the proposed acquisition of Shaw by Rogers in Ottawa in January 2023.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Spencer Colby</span></span>
</figcaption>
</figure>
<p>Second, merger challenges take months of preparation. To do this properly, the Competition Bureau has to know what deal it’s looking at so it can build a strong case. </p>
<p>When a deal is substantially modified after the commissioner files a formal application, he has to adjust his evidence and strategy on the fly. In Rogers-Shaw, the tribunal and the Federal Court of Appeal said there was no unfairness to the commissioner, but this ignores the potential for strategic abuse of the rule in future cases. </p>
<h2>Proposals for reform</h2>
<p>While it can sometimes take years to change judge-made rules, the second phase of competition law reform, expected in the coming year, gives us a chance to nip the issues raised by Rogers-Shaw in the bud.</p>
<p>Here are two ideas for how to strike a balance between the need for flexibility when deals change after litigation starts, and ensuring merger review serves the public interest.</p>
<p>First, when post-challenge deal modifications incorporate remedies, parties should have to convince the tribunal these remedies are sufficient to address any anti-competitive concerns, unless the commissioner agrees they are adequate. </p>
<p>This ensures private parties cannot choose their own remedy without convincing the commissioner or tribunal it’s in the public interest. This should discourage self-serving low-ball remedy offers.</p>
<p>Second, there must be conditions that determine when a deal change is too late or too significant to be folded into an ongoing merger challenge, without putting an unfair or unreasonable burden on the commissioner or harming public interest.</p>
<p>One solution is to create a default rule saying major post-challenge changes to the original deal require a new notification, triggering a fresh review, unless parties can prove it’s not needed. This would allow the commissioner to study a new deal properly, ultimately leading to a faster resolution without litigation.</p><img src="https://counter.theconversation.com/content/197188/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jennifer Quaid holds research grants from the Social Sciences and Humanities Research Council of Canada. She is a Senior Fellow at the Centre for International Governance Innovation (CIGI) and the chair of the Legal Committee of Transparency International Canada. </span></em></p>The Rogers-Shaw decision is proving to be a legally significant case for Canada by setting a precedent that might make merger challenges harder in the future.Jennifer Quaid, Associate Professor & Vice-Dean Research, Civil Law Section, Faculty of Law, L’Université d’Ottawa/University of OttawaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2015542023-03-11T12:59:49Z2023-03-11T12:59:49ZJetBlue merger with Spirit not cleared for takeoff – why Justice Department is suing to scupper deal<figure><img src="https://images.theconversation.com/files/514695/original/file-20230310-15-7x9lo1.jpg?ixlib=rb-1.1.0&rect=49%2C106%2C5497%2C3530&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Stuck on the runway?</span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/JetBlueSpirit/9a027e428c5f4edfb2a7faff690109bf/photo?Query=JetBlue%20Spirit&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=45&currentItemNo=20">AP Photo/Wilfredo Lee</a></span></figcaption></figure><p><em>The U.S. Department of Justice has <a href="https://www.politico.com/news/2023/03/07/doj-sues-to-block-jetblues-3-8-billion-spirit-takeover-00085828">intervened to block a proposed deal</a> that would see carrier JetBlue buy budget service Spirit Airlines.</em></p>
<p><em>In a lawsuit filed on March 7, 2023, the department warned that allowing the US$3.8 billion deal to go through would “<a href="https://storage.courtlistener.com/recap/gov.uscourts.mad.254267/gov.uscourts.mad.254267.1.0.pdf">eliminate the unique competition</a>” that Spirit, the lower cost airline, currently provides.</em></p>
<p><em>The Conversation asked Joe Mazur, an <a href="https://joemazur.io">expert on mergers and acquisitions</a> at Purdue University, what consolidation in the airline industry – and the proposed JetBlue-Spirit merger – means for consumers, and why the government is keen to block it.</em></p>
<h2>Why is the Justice Department intervening?</h2>
<p>The JetBlue-Spirit merger would bring more consolidation into an already <a href="https://www.businessinsider.com/airline-mergers-and-acquisitions-in-the-us-since-2000-2020-3">heavily consolidated industry</a>.</p>
<p>But it is more nuanced than that. JetBlue and Spirit have very different business models – JetBlue has positioned itself at the higher end of the low-cost carrier space, whereas Spirit is a through-and-through, no-frills, ultra-low-cost carrier. It keeps prices down by sacrificing things such as complimentary snacks and drinks, entertainment and comfort.</p>
<p>Although the deal is framed as a merger, it is really an attempted hostile takeover <a href="https://news.northeastern.edu/2022/10/20/jetblue-spirit-acquisition/">of Spirit by JetBlue</a>. As such, it’s not just the Justice Department that is worried about the impact of losing Spirit. According to <a href="https://www.justice.gov/atr/case-document/file/1573131/download">the official complaint</a>, so too are Spirit’s board of directors.</p>
<p>The presence of an ultra-low-cost service like Spirit has a <a href="https://www.bu.ac.th/knowledgecenter/epaper/july_dec2004/sungkard.pdf">disciplining effect</a> on prices across the entire market – that is, it helps keep ticket prices down, especially in the markets where it competes.</p>
<p>The biggest concern is that if the merger is allowed to go ahead, JetBlue would simply reconfigure the assets of Spirit to match the service level and prices of JetBlue. For example, as cited in the complaint, JetBlue has indicated it plans to remove some seats from Spirit’s planes in order to bring them in line with the rest of the JetBlue fleet.</p>
<p>If it were the other way around – that is, if Spirit were buying JetBlue – then I’m not sure there would be a problem. Similarly if the merger was between Spirit and fellow low-cost carrier Frontier, a deal that was at <a href="https://www.cnbc.com/2022/07/27/spirit-airlines-frontier-terminate-deal-that-was-marred-by-jetblues-rival-bid.html">one point on the table</a>, the government may not have gotten involved.</p>
<h2>How does this proposed merger fit the industry trend?</h2>
<p>There has been a ton of consolidation over the last couple of decades. The pursuit of profit motivates most every merger attempt, and it’s no secret that airlines weren’t making money for a long stretch. The 9/11 terrorist attacks, a series of pilot strikes, rising fuel costs, and a couple of recessions <a href="https://doi.org//10.1016/j.jeconbus.2004.06.003">hit the industry hard</a> in the early 2000s.</p>
<p>In 2005, Northwest Airlines and Delta Air Lines <a href="https://www.nbcnews.com/id/wbna9317550">filed for bankruptcy</a>. They both restructured, through laying off staff and streamlining services, and came out of bankruptcy a couple years later. Then in 2008 they <a href="https://simpleflying.com/delta-northwest-merger/">announced a merger</a>.</p>
<p>At the same time you started to hear about “<a href="https://www.forbes.com/sites/tedreed/2022/04/18/will-wall-streets-capacity-discipline-enforcers-jump-back-in-as-airlines-report-earnings/?sh=3395d45b4873">capacity discipline</a>” – that is, the reduction, or at least slower introduction, of seats and flights overall. In short, the airlines were not competing as intensively in a bid to make flights more profitable for the entire industry. But such a plan is a lot easier to stick to when there are fewer players.</p>
<p>The deal between Delta and Northwest was followed by a series of other mergers. In 2010, United Airlines merged with Continental in an <a href="https://airwaysmag.com/continental-united-merger-completed/">$8.5 billion deal</a>. A year later, <a href="https://www.heraldtribune.com/story/news/2010/09/27/update-southwest-to-buy-airtran-for-14b/28969123007/">Southwest bought AirTran Airways</a> for $1.4 billion.</p>
<p>In 2013, American Airlines and US Airways merged to <a href="https://www.theguardian.com/business/2013/dec/09/american-us-airways-merge-worlds-biggest-airlines">form the largest carrier</a> in the world at that time. Other mergers followed, including the <a href="https://apex.aero/articles/charu-jain-alaska-airlines-virgin-america-merger/#:%7E:text=In%20December%202016%2C%20Alaska%20Airlines,president%20and%20chief%20information%20officer.">combination of Alaska Airlines and Virgin America</a> in 2016. Today, per the government’s official complaint, the largest four airlines represent some 80% of airline traffic.</p>
<p>If the JetBlue-Spirit deal is scuttled, it would be the first time since 2001 that two airlines have <a href="https://money.cnn.com/2001/07/27/deals/united_usair/">abandoned a proposed merger</a> in the face of a lawsuit from the Justice Department. In that case it was a proposed merger between United Airlines and US Airways that the Bush administration claimed would result in <a href="https://money.cnn.com/2001/07/27/deals/united_usair/">higher fares and worse service</a>. Since then the government has stepped in on numerous occasions to block airline mergers, but has eventually given the green light following concessions from the airlines.</p>
<h2>What was behind the trend to consolidate?</h2>
<p>The traditional argument for mergers put forward by airlines is that they <a href="https://doi.org/10.1007/s11151-019-09717-2">produce a higher-quality, more efficient product</a> – it is a win-win, they say, generating benefits for consumers and investors alike. Oftentimes this is at least partly true. </p>
<p>However, consolidation also leads to higher profits simply by virtue of reduced competition. That is, you tend to make more money when there aren’t as many competitors. For example, my daughter’s lemonade stand will sell more lemonade if there isn’t a rival stand across the street – and she can even charge more per cup!</p>
<p>Similarly, airlines make more money when fewer of them are competing, and part of that is being able to raise prices for consumers. This aspect of consolidation is where the <a href="https://www.ftc.gov/legal-library/browse/statutes/clayton-act">Clayton Act</a>, which outlaws anti-competitive mergers, becomes relevant. And the Clayton Act is the basis for the Justice Department’s suit. </p>
<p>Mergers can also bring about scale efficiencies – there are real, proven benefits to having a large network.</p>
<p>But JetBlue will almost certainly need to restructure the merger if it is to be successful. This would likely mean the divestiture of assets – for example, the sale of landing rights at some airports to budget airlines, or relinquishing gate leases to others – to increase competition. American Airlines and US Airways <a href="https://skift.com/2013/02/13/american-airlines-us-airways-merger-the-concessions-theyll-have-to-make/">agreed to similar concessions</a> before they were allowed to merge, and JetBlue has already indicated plans to divest assets at some airports. </p>
<p>Nevertheless, I do not expect the merger to go through without a drastic change in the expected use of Spirit’s assets.</p>
<h2>Do mergers necessarily mean higher airfare?</h2>
<p>It depends on the merger and the market in question. Studies <a href="https://doi.org/10.1111/1756-2171.12404">vary pretty widely</a> on this issue, based on the methodology they use, the macroeconomic context for the merger, and the type of businesses involved. But generally what you see is that after a merger, prices in overlap markets – those in which the two merging carriers compete – go <a href="https://doi.org/10.1111/1756-2171.12404">up by maybe 3-5% overall</a>, with larger increases on the order of 10-15% on routes where the overlap is especially significant. For JetBlue and Spirit, markets in and out of Fort Lauderdale, Boston, Hartford and others are most likely to see significant upticks.</p>
<p>This is because mergers generate upward pricing pressure by reducing competition. But, from a consumer’s point of view, that might be tolerable as long as the resulting product is better. This may be especially true if prices are held down because of resulting efficiency gains.</p>
<p>In the JetBlue and Spirit case, it might mean prices go up for the old Spirit flights, but not so much for the JetBlue flights. So if you are a JetBlue fan, this could be good news. It would mean that you can now fly to more places, and you get the same JetBlue services.</p>
<p>But if you are a Spirit die-hard, you will not like this at all. Instead of paying a lot less, you might have to pay more for a flight with add-ons you can do without. And if you are a frequent flier on just about any other airline, you can expect to lose the price-tempering effects of Spirit in the long run, given that it is the largest and fastest growing ultra-low-cost carrier in the market.</p>
<h2>Are claims that services improve through a merger true?</h2>
<p>The short answer appears to be yes for some mergers but not necessarily on all metrics. One study found that the effect of legacy mergers on fares was negligible and that overall, such deals were pro-competitive because they led to an <a href="https://doi.org/10.1016/j.ijindorg.2017.12.002">increase in capacity</a>.</p>
<p>As to other metrics, such as easier boarding, more on-time flights, or better in-flight services, that is harder to judge. One study of five airline mergers indicated that on-time performance may get better in the <a href="https://doi.org/10.1111/joie.12136">long run after the merger</a>, but even if on-time performance did improve, it may be the wrong way to look at service changes. If you are someone who relies on budget pricing, then being on time rather than a few minutes late, and having the option of nuts and a soda, might not be enough to offset the pain of having to hand over more money for the flight in the first place.</p><img src="https://counter.theconversation.com/content/201554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joe Mazur has received funding from the National Science Foundation for study of competition models with application to the U.S. airline industry.</span></em></p>The Biden administration fears that further consolidation in the aviation industry will lead to worse outcomes for consumers – but do mergers necessarily push up prices?Joe Mazur, Assistant Professor of Economics, Purdue UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1849952022-07-03T08:10:04Z2022-07-03T08:10:04ZWhy the South African state should not subsidise minibus taxi owners<figure><img src="https://images.theconversation.com/files/469788/original/file-20220620-20-k32fk3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Minibus taxis ferry millions of South Africans around each day.</span> <span class="attribution"><span class="source">Morne De Klerk/Getty Images</span></span></figcaption></figure><p>Millions of South Africans rely on minibus taxis to get around. Without these vehicles, people wouldn’t be able to get to work, school or simply visit friends and family. Data from Statistics South Africa’s Quarterly Labour Force surveys <a href="http://www.statssa.gov.za/publications/Report-02-11-02/Report-02-11-022019.pdf">suggest</a> that there are around 250,000 minibus taxi drivers in the country; there are likely about the same number of minibus taxis.</p>
<p>Statistics South Africa’s <a href="https://www.statssa.gov.za/publications/P0320/P03202020.pdf#page=114">2020 National Household Travel Survey</a>, meanwhile, indicates that 60% of households report taxis as their main mode of transport and the <a href="https://www.statssa.gov.za/publications/P0310/P03102014.pdf#page=50">2014/5 Living Conditions Survey</a> showed that 79% of households reported spending money on taxi fares in the last year. The 2020 Travel Survey also shows that households’ most common complaint about public transport centred on the cost of taxis: they were too expensive. As an example, someone living in Khayelitsha, and working an eight-hour day at the minimum wage in central Cape Town, 27km away, would earn R184 a day and <a href="https://twitter.com/Xila_Notywala/status/1534049362732515328">pay R48</a> for a return trip on a taxi – 26% of their gross earnings. </p>
<p>Rising petrol costs, because of the war in Ukraine and trade disruptions, have amplified calls by taxi associations, the <a href="https://www.compcom.co.za/wp-content/uploads/2021/04/PTMI-Non-Confidential-14-April-2021-FINAL.pdf">Competition Commission</a> and others for the state to increase subsidies to minibus taxis. The only direct subsidies paid to minibus taxi owners is the scrapping allowance, which they receive if they scrap old taxis. Taxi operators complain that this is unfair, and that taxis should be subsidised like buses and trains. </p>
<p>I am an associate professor in economics who has studied the taxi industry and transport costs for 10 years. I’ve taken hundreds of taxis over this time, partly to set up the site <a href="https://www.taximap.co.za">Taximap</a>, which helps taxi commuters find taxis. But I do not believe that minibus taxi operators should receive new operating or capital subsidies. That’s because minibus taxi owners already benefit from two implicit but extremely valuable subsidies.</p>
<h2>Flouting labour laws</h2>
<p>The first is that most taxi owners <a href="https://www.opensaldru.uct.ac.za/bitstream/handle/11090/964/2019_250_Saldruwp.pdf?sequence=1">do not abide</a> <a href="https://www.researchgate.net/publication/338432330_Employment_Practices_within_the_Minibus_Taxi_Industry_in_Johannesburg_A_Study_of_Precariousness_of_Jobs_in_South_Africa">by labour laws</a> when employing drivers. That substantially reduces owners’ operating costs. The second is that while taxi associations <a href="https://openknowledge.worldbank.org/bitstream/handle/10986/30018/127306-Minibus-taxis-Public-Transport-and-the-Poor.pdf?sequence=1&isAllowed=y">seem to be de facto cartels</a>, the state does not enforce competition law in the taxi industry. The industry’s prices and profits would be lower if laws were enforced.</p>
<p>My analysis of Statistics SA’s 2019 <a href="http://www.statssa.gov.za/publications/Report-02-11-02/Report-02-11-022019.pdf">Quarterly Labour Force Survey data</a> shows that 70% of taxi drivers earned less than the national minimum wage of R20 an hour and 75% work more than the legal maximum of 55 hours per week. </p>
<p>If all drivers earning below the minimum wage were paid the minimum wage but worked the same number of hours as they did before, the estimated taxi driver yearly wage bill would increase by about 30-40%. So, ignoring labour laws substantially reduces the cost of operating taxis. </p>
<p>Train and bus companies, meanwhile, are almost all formal. They are required to pay their drivers and other employees’ wages that are determined in bargaining councils and which, at <a href="https://www.sarpbac.org.za/wp-content/uploads/2022/06/MCA-2022-2023.pdf#page=11">R50 per hour</a> for bus drivers, are two and a half times the national minimum wage. </p>
<p>Bus drivers may also work only the maximum number of hours permitted by law before qualifying for overtime pay. They’re also entitled to paid leave and various conditions of service that do not exist in the taxi industry.</p>
<h2>Cartel-like behaviour</h2>
<p>Taxi associations are groupings of independent business owners that get together and fix one price for each route that they control, which all members must charge. This is the textbook definition of a cartel and is illegal under <a href="https://www.gov.za/sites/default/files/gcis_document/201409/a89-98.pdf">the Competition Act</a> </p>
<p>The <a href="https://www.compcom.co.za/wp-content/uploads/2021/04/PTMI-Non-Confidential-14-April-2021-FINAL.pdf">Competition Commission’s recent market enquiry</a> into land-based passenger transport acknowledged the Department of Transport’s concern that taxi associations fixed prices. Yet in the report’s findings about price setting, price fixing was not even mentioned. Instead the commission suggested that taxis should receive more subsidies. This failure to apply competition law is a very important implicit subsidy. </p>
<p>Taxi associations maintain and grow their power for two reasons. First, they enforce each taxi owner charging the same price. Second, they actively work to prevent the entry onto routes of non-association members, who in a freer market would enter to take advantage of the high profits and eventually drive down profits and prices – to the benefit of taxi users.</p>
<p>The threat of, and actual, <a href="https://www.dailymaverick.co.za/article/2021-07-23-route-at-heart-of-cape-towns-taxi-violence-eruption-to-be-closed-for-two-months/">violence</a> is the main way in which associations prevent entry. But they also work with public officials, who in many cases <a href="https://www.compcom.co.za/wp-content/uploads/2021/04/PTMI-Non-Confidential-14-April-2021-FINAL.pdf">have decided</a> that taxi associations should have the final say on who can get a license for the route they control. </p>
<h2>Taxi owner profits</h2>
<p>Given these two valuable implicit subsidies it shouldn’t be surprising that owning a taxi is generally extremely lucrative. The City of Cape Town <a href="https://drive.google.com/file/d/1cWiPc8VX9DWW4DTfakaWEgYJ5QyFV9c9/view?usp=sharing">conducted its own surveys</a> of taxis from 12 associations 11 years ago, finding that annual profits were around R70,000 a year ($9000 in 2012), when vehicle values were probably around R100,000- R200,000 ($12000-$24000 in 2012). This represents a 30-70% annual rate of return on capital invested. </p>
<p>Taxi associations often charge extremely high joining fees. The <a href="https://www.compcom.co.za/wp-content/uploads/2021/04/PTMI-Non-Confidential-14-April-2021-FINAL.pdf">Competition Commission’s report</a> mentions fees from R10,000 to more than R200,000. When I talked to taxi drivers in Cape Town during my journeys, many were desperate to become owners despite these high fees. Why would someone want to pay such a large amount of money to be able to operate an apparently unprofitable business? The obvious answer is that many taxi owners actually make large profits. </p>
<p>Transport planners, <a href="https://pmg.org.za/committee-meeting/30830/">policy makers</a>, <a href="https://www.timeslive.co.za/news/south-africa/2017-07-11-whats-behind-taxi-violence-santaco-explains/">taxi representatives</a> and commentators ignore or deny this. They often <a href="https://www.dailymaverick.co.za/article/2020-09-14-how-to-restructure-sas-minibus-taxi-industry/">argue</a> that there is an “oversupply” of taxis. They then conclude that taxis operate at very <a href="https://theconversation.com/why-operational-subsidies-are-key-to-reforming-south-africas-minibus-taxi-sector-146932">low profit levels</a> and should be <a href="https://theconversation.com/subsidies-for-south-africas-minibus-taxis-must-prioritise-needs-of-passengers-and-cities-149549">subsidised</a>. But subsidising taxi owners who belong to associations that resemble cartels is likely to lead to higher profits for owners, with little benefit to taxi users.</p>
<p>Minibus taxi operators provide a valuable service to many people in South Africa, which the state has been unable to provide. They receive little direct subsidy but two very substantial implicit subsidies. Instead of the state further subsidising taxi owners, policy makers should be thinking creatively about ways to enhance competition, reduce violence and enforce existing regulations.</p><img src="https://counter.theconversation.com/content/184995/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Kerr is the co-owner of Taximap, a website to help people obtain information on minibus taxi routes. </span></em></p>The industry’s prices and profits would be lower if laws were enforced.Andrew Kerr, Associate Professor, University of Cape TownLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1784972022-03-17T16:55:15Z2022-03-17T16:55:15ZProvincial competition law needed to address the power of gig work platforms<figure><img src="https://images.theconversation.com/files/452278/original/file-20220315-17-1aeiqvu.jpg?ixlib=rb-1.1.0&rect=0%2C368%2C5414%2C3194&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Gig work is at a greater risk of monopsony than other platforms because of the role platform owners play as regulators and collectors of user data.</span> <span class="attribution"><span class="source">(Shutterstock)</span></span></figcaption></figure><p>With the invention of gig-based platforms like Uber and SkipTheDishes, the gig economy has not just become an integral part of the labour industry, but also digital society as well. </p>
<p>Along with the meteoric rise in popularity of these platforms, many of these companies have “monopsonies” in their industries. A <a href="https://www.investopedia.com/terms/m/monopsony.asp">monopsony</a> is similar to a <a href="https://www.investopedia.com/terms/m/monopoly.asp">monopoly</a>, except instead of a single <em>seller</em> dominating a supply of goods and services, a single <em>buyer</em> controls the market.</p>
<p>Businesses gain monopsony power in labour markets when workers lack meaningful outside options for employment. <a href="https://equitablegrowth.org/monopsony-market-power-labor-market/#:%7E:text=The%20classic%20example%20of%20a,of%20labor%20in%20the%20town.">When workers have fewer options for where to work</a>, they are forced to take on unstable, exploitative work for less pay to make ends meet.</p>
<p>Currently, government regulators have limited tools to address the market power of these gig-based platforms. Recent discussions on <a href="https://lmic-cimt.ca/what-does-gig-work-mean">gig work</a> in Canada have focused on benefits like <a href="https://www.canada.ca/en/employment-social-development/programs/ei/consultation-better-program-backgrounder.html">reforming Employment Insurance</a> and classification (<a href="https://gigworkersunited.ca/">seeking employee status</a>), but have overlooked anti-competitive behaviour and the role of employer monopsony. </p>
<h2>Gig work especially vulnerable</h2>
<p><a href="https://www.investopedia.com/terms/g/gig-economy.asp">Gig work</a> — especially those housed on digital platforms — are at a greater risk of monopsony than other platforms because platform owners are also the regulators and collectors of user data. For instance, Uber <a href="http://economicstudents.com/2017/03/uber-is-problematic-but-youll-keep-using-it-anyway/">acts like a monopsonist</a> when it purchases all trips from riders before connecting them to drivers. </p>
<p>Some scholars have argued that <a href="https://doi.org/10.1093/jeclap/lpab017">gig work platforms are essentially price-fixing schemes</a> between contract workers, which is yet another manifestation of monopsony power. </p>
<p>Gig platforms’ use of data may also further increase the monopsony power they wield against workers. For instance, <a href="https://doi.org/10.1093/ser/mwab028">carrot-and-stick incentives</a> based on data collected, like <a href="https://www.wired.com/story/how-to-fix-ratings-in-the-gig-economy/">rating systems</a>, <a href="https://www.varicent.com/blog/variable-compensation-and-the-gig-economy">bonuses</a> and the <a href="https://www.zdnet.com/article/ruled-by-algorithms-gig-workers-remain-powerless-against-automated-decision-making/">threat of being punished by management</a>, can coerce workers into taking jobs they may not usually consider.</p>
<figure class="align-center ">
<img alt="A woman moving grocery bags from a shopping cart into the trunk of a car" src="https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=384&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=384&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=384&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=482&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=482&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452280/original/file-20220315-27-v28zqj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=482&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Carrot-and-stick incentives, like rating systems and bonuses, can coerce workers into taking jobs they may not usually consider working.</span>
<span class="attribution"><span class="source">(AP Photo/Ben Margot, File)</span></span>
</figcaption>
</figure>
<p>Given that technology trends are enhancing monopsony power through algorithms, regulators must examine the tools that they have to curb this power. They should also empower themselves with new ones built for modern markets, controlled by digital technologies and algorithms. </p>
<p>Our <a href="https://vivicresearch.ca/PDFS/Competition-Data-Driven-Markets-Final-Report-2022.pdf">new working paper</a> co-authored with <a href="https://www.linkedin.com/in/ana-qarri-b25a6858/?originalSubdomain=ca">Ana Qarri</a>, a recent graduate of McGill University’s Faculty of Law, uses labour monopsony power as a case study to explore competition issues in data-driven markets.</p>
<h2>Provincial legislation is needed</h2>
<p>One of our recommendations to better address monopsony power in labour markets is to establish separate provincial competition legislation targeted specifically at employers. </p>
<p>Our analysis found that authorities traditionally focus on addressing the strategies companies use to exert their monopsony power, like <a href="https://www.competitionpolicyinternational.com/no-poach-and-wage-fixing-agreements-in-canada-so-whats-the-issue/">wage-fixing and non-poaching agreements</a>. However, they have done little to address monopsony directly, mainly because <a href="https://laws-lois.justice.gc.ca/eng/acts/C-34/">competition law</a> does not provide many tools for tackling it at its root. </p>
<p>Even in instances where competition law does provide tools for protecting workers, it is likely that the Competition Bureau is not enforcing the law to the full extent. The most notable example is mergers and acquisitions that <a href="https://economics.princeton.edu/working-papers/monopsony-in-the-labor-market-new-empirical-results-and-new-public-policies/">lead to monopsony power in some labour markets</a>.</p>
<figure class="align-right ">
<img alt="A man in a suit standing up and giving a speech" src="https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=705&fit=crop&dpr=1 600w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=705&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=705&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=886&fit=crop&dpr=1 754w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=886&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/452281/original/file-20220315-17-1cymjso.JPG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=886&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Canada’s minister of industry, François-Philippe Champagne, recently announced that Canada’s competition law will be examined.</span>
<span class="attribution"><span class="source">THE CANADIAN PRESS/Adrian Wyld</span></span>
</figcaption>
</figure>
<p>While the Competition Bureau has the power to investigate and even challenge mergers that lead to substantial monopsony power, we found no evidence that it ever has. A provincial authority may be better positioned to address competition issues in labour markets, given that labour law is generally under the purview of the province. </p>
<p>Such an authority could consider <a href="https://accesstomarkets.org/the-latest/potentially-unfair-or-coercive-business-contract-terms/">coercive contract terms</a> that prevent workers and consumers from enforcing their rights under law and other anti-competitive tactics that entrepreneurs and small business owners may face. </p>
<p>Industry Minister François-Philippe Champagne <a href="https://www.canada.ca/en/innovation-science-economic-development/news/2022/02/minister-champagne-maintains-the-competition-acts-merger-notification-threshold-to-support-a-dynamic-fair-and-resilient-economy.html">recently announced</a> that Canada’s competition law will be examined, specifically mentions addressing wage fixing agreements, which is encouraging. </p>
<p>This update could also make it possible for Canada’s competition commissioner to pursue cases against digital platforms on the basis that they are price-fixing conspiracies for contractors operating on platforms, as <a href="https://doi.org/10.1093/jeclap/lpab017">some scholars</a> have proposed. </p>
<h2>Workers need protection</h2>
<p>However, there has been little demonstrated awareness of the role of monopsony power in influencing worker welfare, both in the government and in competition and labour policy circles. The absence of a strong role for the provinces on competition issues may have contributed to the <a href="https://www.cigionline.org/articles/canadas-competition-law-is-it-really-up-to-the-task/">general lack of innovation on the topic</a>.</p>
<p>Still, the province currently has a <a href="https://www.competitionbureau.gc.ca/eic/site/cb-bc.nsf/eng/03886.html">memorandum of understanding</a> with the bureau that promotes co-operation and knowledge exchange. Last year Canada’s labour minister made Ontario the first province to <a href="https://www.thestar.com/business/2021/10/25/ontario-government-bans-noncompete-clauses-freeing-up-workers-to-change-jobs.html">ban non-compete agreements</a>, which restrict workers’ abilities to change jobs freely. </p>
<p>Policy-makers should aim to prevent — and even reduce — monopsony power itself. Readdressing gig workers through the Employment Standards Act will not curb the monopsony power digital firms hold over workers. </p>
<p>While employee reclassification will unlock more benefits and worker rights, such as termination pay, minimum wage, minimum or core benefits, pay stubs and notice of termination, an entirely new legislative approach is needed to curb the profound and growing ability of gig platforms to obtain and exert monopsony power over workers in Canada.</p><img src="https://counter.theconversation.com/content/178497/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Vasiliki "Vass" Bednar is affiliated with the Public Policy Forum (Fellow) and the Centre for International Governance Innovation (CIGI) (Senior Fellow).
She has received funding from the Ministry of Innovation, Science and Economic Development and the Ministry of Government and Consumer Services (Ontario) for policy research on competition. She has also received funding from the Ministry of Labour, Training and Skills Development of Ontario as a member Ontario's Workforce Recovery Advisory Committee (2021-2022). </span></em></p><p class="fine-print"><em><span>Robin Shaban is the owner and co-founder of Vivic Research. They have received funding from Unifor and the Canadian Centre for Policy Alternatives for research and educational services related to competition policy. Robin is affiliated with the Canadian Centre for Policy Alternatives. </span></em></p>New legislation could strengthen the social contract between workers and platforms.Vasiliki Bednar, Executive Director, Master of Public Policy in Digital Society Program and Adjunct Professor of Political Science, McMaster UniversityRobin Shaban, PhD Candidate, School of Public Policy and Administration, Carleton UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1737362021-12-15T23:52:31Z2021-12-15T23:52:31ZAllan Fels: As ACCC chair, Gina Cass-Gottlieb will put the public interest first, despite years of fighting for business<figure><img src="https://images.theconversation.com/files/437908/original/file-20211215-27-141v3ai.png?ixlib=rb-1.1.0&rect=392%2C481%2C2616%2C1242&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Lukas Coch/AAP</span></span></figcaption></figure><p>The proposed appointment of <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/government-nominates-gina-cass-gottlieb-australian">Gina Cass-Gottlieb</a> as chair of the Australian Competition and Consumer Commission (ACCC) next year is welcome, as is the appointment of Liza Carver as ACCC enforcement commissioner. </p>
<p>If approved by a majority of the states, they will start in March.</p>
<p>Cass-Gottlieb is a fine appointment. She is widely regarded as the leading practitioner of competition law in Australia. Besides her outstanding skills, she has been adept at understanding the mind of the regulator and persuading clients to adapt their defence accordingly, quite often arriving at outcomes suitable for the defendant and the regulator.</p>
<p>A critical requirement is that the chair is a person of integrity who puts the public interest first. I believe Gina Cass-Gottlieb will do this despite years of being on the big business defence side. </p>
<p>I myself have urged her (and Liza Carver) to join the ACCC for over twenty years because I believe both have this essential attribute as well as the required skills. </p>
<p>Gina Cass-Gottlieb will be the first female chair since the establishment of competition institutions in the mid-1960s. </p>
<p>Interestingly, there has been a recent awakening by competition authorities and the OECD to the existence of gender issues in competition policy. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/uncomfortable-comparisons-why-rod-sims-broke-the-accc-record-105730">Uncomfortable comparisons. Why Rod Sims broke the ACCC record</a>
</strong>
</em>
</p>
<hr>
<p>To take but one example, as everyone knows there has been massive discrimination past and present against women in terms of access to jobs, education, finance, small business opportunities, and so on. </p>
<p>This discrimination is not only inherently objectionable, but also constitutes a substantial restriction to competition in itself.</p>
<p>It will be interesting to see if the new leadership team addresses these issues – at least in their advocacy. I doubt there will be much litigation on this subject.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437909/original/file-20211215-23-c83uoh.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1218&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Liza Carver, named enforcement commissioner.</span>
</figcaption>
</figure>
<p>Liza Carver is also a very good appointment. In the 1990s, she was an associate commissioner of the ACCC for six years. </p>
<p>Her original background was from the consumer and public interest law community.</p>
<p>Like Gina Cass-Gottlieb, for the last twenty years she has been on the defence side, but I believe she too has the necessary public interest commitment essential for the appointment.</p>
<p>It is also timely to appoint a lawyer as chair. </p>
<p>Many years ago, I used to say that lawyers had an unwarranted monopoly on the chairmanship, as they did in the first twenty years of competition law. </p>
<p>These days I would say the opposite: economists should not have a monopoly and where they are appointed, they need to have a strong feel for legal questions.</p>
<h2>Despite what you’ve heard, the ACCC litigated well</h2>
<p>Some claim that the appointments have been made because the ACCC has been poor at litigation, citing evidence of a set of recent losses in merger cases. However, the ACCC’s litigation generally across the whole field of competition and consumer law has been effective and successful. </p>
<p>Its recent losses in merger cases are not essentially the fault of a weak litigation team, but rather reflect the fact that the test for substantial lessening of competition introduced in the 1990s has proved problematic. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/are-mergers-harming-consumers-we-wont-know-if-we-dont-check-115378">Are mergers harming consumers? We won't know if we don't check</a>
</strong>
</em>
</p>
<hr>
<p>The old pre-1990s test that a merger would only be prohibited if it gave rise to dominance had shortcomings. In particular, mergers that clearly would lessen competition – such as those where the number of major competitors was reduced from three to two – generally were left untouched. </p>
<p>But the test had one advantage: it was easy for courts to apply. It focused on the structure of the market at the time. It was not highly forward looking.</p>
<p>The current prohibition on mergers that are likely to “substantially lessen competition” is right in principle, but asks what the state of competition might be a few years after a merger. </p>
<p>Numerous fanciful stories are presented to the courts about how future competition is a real possibility, with the courts placing too much weight on the self-interested evidence of business applicants.</p>
<h2>Sims put the public interest first</h2>
<p>This problem has been added to by the substantial upskilling of the legal defence establishment compared with times in the 1990s when it was less equipped to deal with new vigorous enforcement of the law.</p>
<p>Claims that the ACCC’s own litigation skills are inadequate pale into insignificance compared with the forces arrayed against them.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=968&fit=crop&dpr=1 600w, https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=968&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=968&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1216&fit=crop&dpr=1 754w, https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1216&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/437910/original/file-20211215-19-hxc274.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1216&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Rod Sims, ACCC chair since August 2011.</span>
</figcaption>
</figure>
<p>Outgoing ACCC chair Rod Sims has proposed changes in merger law because of his concerns. One way of fighting off a stronger merger law is to claim it is the regulator’s skills in enforcing the law that are the problem, not the law.</p>
<p>Sims himself has a record of fine achievements across the range of litigation, consumer protection, regulation, market studies and advocacy. </p>
<p>He brought to bear his skills and experience working in government bureaucracy, as a regulator and as a person who spent ten years in the private sector.</p>
<p>He has made a special contribution with his world-first pioneering work on digital platforms, which is being copied around the world. </p>
<p>Sims also had that essential commitment to putting the public interest first, despite enormous pressures from those affected by the application of the law. </p>
<h2>Crytocurrencies, cartels among priorities</h2>
<p>Looking ahead, there are some challenges for the new ACCC chair: above all, continued vigorous and intelligent day-to-day enforcement of competition and consumer law across the board. </p>
<p>Continuing to make progress on the application of the law to the digital platforms will be especially challenging. The economic analysis needed in this area is essentially new and different from that needed in past litigation and regulation.</p>
<p>Big changes are looming in the financial services sector, including the rise of cryptocurrency and new forms of business like those in the buy now and pay later arena. These require careful handling to protect consumers.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/we-allowed-facebook-to-grow-big-by-worrying-about-the-wrong-thing-152190">We allowed Facebook to grow big by worrying about the wrong thing</a>
</strong>
</em>
</p>
<hr>
<p>Recent changes in the law need careful application. Historically there has been some limitation on the reach of cartel law. In former times, certain business practices that brought about the same results as would an agreed cartel were not covered by the law. </p>
<p>These days if there is a “concerted practice” by business that falls short of an agreement to fix prices – but if it has that effect – it is covered by the new law. This will require careful testing.</p>
<p>I do not agree with the view that the ACCC should not advocate for changes in the law nor comment on competition issues.</p>
<h2>Speaking up will matter</h2>
<p>Without strong ACCC advocacy, most of the good changes in competition law in the past 30 years would not have occurred, including the improved, strong merger law, more sensible provisions about the abuse of market power, criminal sanctions for cartel conduct, unconscionable conduct laws and public support for the Hilmer competition reforms. </p>
<p>In these matters the ACCC has usually started out as a lone voice fighting often loud, hysterical and uninformed opposition from the big end of town, both corporates and lawyers defending their clients.</p>
<p>Many challenges lie ahead for the new chair, but she will find Rod Sims has left the ACCC in excellent shape. We wish her well.</p>
<hr>
<p><em>Allan Fels was chair of the ACCC from its inception in 1995 until June 2003.</em></p><img src="https://counter.theconversation.com/content/173736/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Allan Fels was chair of the ACCC from its inception in 1995 until June 2003.</span></em></p>The inaugural chair of the ACCC says Gina Cass-Gottlieb’s experience opposing the ACCC in court will prove invaluable, and that it’s time to appoint a lawyer as chair.Allan Fels, Professorial Fellow, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1716282021-11-10T17:33:41Z2021-11-10T17:33:41ZGoogle loses appeal against €2.4 billion fine: tech giants might now have to re-think their entire business models<figure><img src="https://images.theconversation.com/files/431315/original/file-20211110-13-wxhek4.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">US tech company's search for the right result proves fruitless. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/kyiv-ukraine-july-23-2021-this-1995978284">viewimage</a></span></figcaption></figure><p>Google is being fined €2.4 billion (£2.1 billion) for hindering competition in the EU after a 2017 decision has been <a href="https://curia.europa.eu/jcms/jcms/p1_3582315/en/">upheld on appeal</a> by the general court of the European Union. This is a saga dating back over 15 years, in which the European Commission has been accusing the tech giant of using its search results to give preferential treatment to its comparison shopping service over those of competitors. </p>
<p>The fine, of which a share will directly go <a href="https://www.bloomberg.com/news/articles/2021-07-01/google-eu-court-defeats-could-help-u-k-net-2-1-billion-bonus">to the UK</a> by virtue of the EU withdrawal agreement, is also a vindication of the long fight against big tech by competition comissioner Margrethe Vestager. She suffered a crushing defeat in July 2020 when the <a href="https://www.bbc.com/news/business-53416206">same court overturned</a> a €13 billion fine imposed on Apple for an elaborate – but legal – tax avoidance scheme. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Margarethe Vestager addressing a press conference" src="https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/431317/original/file-20211110-13-4t3vx9.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Vindication for Margarethe Vestager, EU competition comission.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/eu-commissioner-competition-margrethe-vestager-addresses-1055024600">Alexandros Michailidis</a></span>
</figcaption>
</figure>
<p>But this time, the tide has turned and the message is clear: the regulators will not allow Google and its fellow tech giants to steer consumers towards their own products. They may now have to re-think their entire business models as a result. The internet as we know it – in which most services are free to use but consumers pay by giving away their private data – may come to an end.</p>
<h2>The case against Google</h2>
<p><a href="https://www.wired.co.uk/article/fine-google-competition-eu-shivaun-adam-raff">Everything started</a> in 2005 when a British couple, Adam and Shivaun Raff, developed Foundem, a new service for comparison shopping. Google had its own comparison service named Froogle (now Google Shopping), although by its <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1784">own admission</a> in 2006 in an internal document, it “simply doesn’t work”. </p>
<p>Foundem found itself demoted from Google’s search results. Unless you specifically searched for it, it would only appear after several pages of browsing. Without consumers redirected from the dominant search engine, Foundem never really took off. </p>
<p>Having suspected that Google was restricting competition, Adam and Shivaun Raff attempted to convince the company to allow them some visibility. In 2009, they gave up and brought a complaint to the European Commission against Google for abuse of dominant position.</p>
<p>Over the years, several other comparison services such as Expedia and Yelp joined the complaint. They had also attempted to compete with Google, only to see their websites suddenly relegated to the bottom of the search results by the dominant search algorithm. </p>
<p>Then Google competitors in other markets started accusing the American company of anti-competitive practices. <a href="https://www.bbc.co.uk/news/technology-44858238">One complaint</a> was about Google forcing the pre-installation of free Google software on Android phones, for example. <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_21_3143">Another was</a> about Google forcing advertisers to use the company’s services if they wanted to take out ads on YouTube. In all, Google is fighting a <a href="https://www.politico.eu/article/google-shopping-europe-fine-antitrust-margrethe-vestager-competiton/">long series</a> of similar cases on appeal against the commission. </p>
<p>This is where Google’s fine over Froogle becomes really serious. It is is far from being the largest imposed by the European Commission, but it may be the most consequential because the upcoming appeal cases are likely to use this one as a precedent. </p>
<h2>Big tech and consumer rights</h2>
<p>Internet companies like Facebook and Google get their revenue by monetising the data of their customers to show them search and display advertising that is relevant to them. They build an estate of companies – for example Google Search, Google Maps, Google Shopping and YouTube – and try to make sure that when consumers leave one service they stay in the estate. </p>
<p>The estate of Google is called Alphabet, and <a href="https://www.cnbc.com/2021/05/18/how-does-google-make-money-advertising-business-breakdown-.html">80% of</a> Alphabet’s revenue comes from Google ads. The problem arises when a company like Google tries to keep consumers on their estate by hindering competitors. </p>
<p>Google and other tech giants know almost everything about us because they gather information from so many different sources. The logic of the current judgement is that those sources should work as separate entities. </p>
<p>In the future, your Google Maps or flight comparison experience may not use the information Google owns about you, or alternatively the company would have to share the data with competitors. At the same time, Google may not be able to pre-install any of its services on Android phones, and may be forced to give consumers a fair choice of alternatives to Gmail, Maps or YouTube. </p>
<p>This case also confirms divergent approaches to competition policy in the EU and US. The main objective of competition policy, both in the US and Europe, is to protect consumers. </p>
<p>But in the US, the competition authorities concluded <a href="https://www.ftc.gov/sites/default/files/documents/public_statements/statement-commission-regarding-googles-search-practices/130103brillgooglesearchstmt.pdf">in a similar case</a> in 2013 that the behaviour of tech giants does not hurt consumers. <a href="https://onlinelibrary.wiley.com/doi/full/10.1111/1756-2171.12298">Their intuition</a> was that what makes Google rich is what makes consumers happy, that consumers do not mind handing their personal data to this company as they get tailored advice in exchange. </p>
<p>Of course, it may seem that consumers do not care about giving away privacy simply because they are not aware of how much Google knows, and of how much money they make out of their data. For instance, when people started to notice that what is now called Meta, the estate of Facebook, was looking for ways to earn money from WhatsApp users, <a href="https://www.theguardian.com/technology/2021/jan/24/is-it-time-to-leave-whatsapp-and-is-signal-the-answer">it caused</a> quite a stir.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/KIxPRwgXFQg?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>European regulators have taken a radically different approach. Their reasoning dates back two decades, since they <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_04_382">first fined</a> Microsoft for pre-installing Media Player and Internet Explorer with then-dominant operating system Windows 95. </p>
<p>The same essential objection has now been applied to Google. By blocking competitors from entering the market, consumers lose the benefit of potential innovations. <a href="https://www.sciencedirect.com/science/article/pii/S0167718721000023">With that logic</a>, we enjoy the free services of Google simply because we have no idea how much better the alternatives could be if they got a chance to develop. </p>
<p>The general court of the European Union has vindicated the view of the European Commission that Google’s behaviour is anti-competitive. Google may try to appeal to the European court of justice, but the general court’s verdict is likely to remain the guiding principle for the years to come, with major consequences for consumers. </p>
<p>If tech giants cannot earn money from their current business model, they may have to find other sources of revenue, either charging directly consumers or by creating <a href="https://www.aeaweb.org/articles?id=10.1257/aer.20191330">a more transparent system</a> in which consumers are aware of the value of their data and sell it freely. Whether the US will follow suit, and with whom the UK will choose to align if antitrust policies start to diverge radically across the Atlantic, are now the next big questions.</p><img src="https://counter.theconversation.com/content/171628/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Renaud Foucart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The knock-on effects from this ruling could be enormous.Renaud Foucart, Senior Lecturer in Economics, Lancaster University Management School, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1519792020-12-18T13:29:01Z2020-12-18T13:29:01ZWhy Facebook antitrust case relies so heavily on Mark Zuckerberg’s emails<figure><img src="https://images.theconversation.com/files/375710/original/file-20201217-15-1tuqj8o.jpg?ixlib=rb-1.1.0&rect=320%2C65%2C4539%2C3169&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mark Zuckerberg's own words are key evidence in the FTC lawsuit against Facebook. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/DigitalServicesActAvaazStunt/baf6ee5368e9479db9e2b8a61149c0c3/photo?Query=zuckerberg&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=2374&currentItemNo=6">AP Images/Olivier Matthys</a></span></figcaption></figure><p>Facebook CEO Mark Zuckerberg’s own words play a starring role in the <a href="https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization">government’s case to break up his social network</a>. </p>
<p>“It is better to buy than compete,” he allegedly wrote in an email in 2008, according to the lawsuit. Four years later, after Facebook purchased what he had called a “very disruptive” photo-sharing app, he celebrated by explaining to a colleague in another email: “Instagram was our threat. … One thing about startups though is you can often acquire them.”</p>
<p>As an antitrust professor preparing a new spring course called “Antitrust for Big Tech,” I read the <a href="https://www.ftc.gov/enforcement/cases-proceedings/191-0134/facebook-inc-ftc-v">FTC’s Dec. 9 complaint</a> with great interest. I have taught my students for years that internal documents can come back to haunt antitrust defendants. But I have never seen a plaintiff’s case rely so heavily on a CEO’s own words. </p>
<p>As I read the FTC’s summary of the arguments it plans to make at trial, I began to highlight every direct quote from an internal Facebook communication. My highlighter ran out of ink. </p>
<p>Basing a monopolization case on a CEO’s own explanations of his conduct may seem like a straightforward strategy to most people. But among judges and antitrust scholars, <a href="http://www.arizonalawreview.org/pdf/47-3/47arizlrev609.pdf">it’s actually controversial</a>, as it is sure to be in this case. </p>
<p>Despite that controversy, the FTC’s choice to hoist Facebook by its own petard makes sense. Zuckerberg’s emails are voluminous and specific in describing how the mergers will insulate his company from competition. They avoid most of the problems critics have with using what lawyers call “hot documents” to make an antitrust case.</p>
<h2>It worked against Microsoft</h2>
<p>And anyway, it’s worked before.</p>
<p>The case against Facebook bears similarities to <a href="https://www.law.berkeley.edu/files/US_v_Microsoft3.pdf">U.S. v. Microsoft</a>, the landmark 2001 case that found the software company liable for monopolization. Here, the FTC will have to prove that Facebook, like Microsoft, acquired its market power in the social media market by excluding rivals, not merely by making a great product. And in both cases, internal statements by executives play a big role.</p>
<p>In the case, the government produced a <a href="https://www.justice.gov/sites/default/files/atr/legacy/2006/03/03/20.pdf">1995 memo</a> in which Microsoft founder Bill Gates identified Netscape as “a new competitor ‘born’ on the internet.” A few years later, another executive allegedly <a href="https://archive.nytimes.com/www.nytimes.com/library/cyber/week/011298microsoft.html">said</a>, “We are going to cut off [Netscape’s] air supply.” </p>
<p>When Microsoft proceeded to do so by impeding Netscape’s access to Windows users, statements like these made it hard for the company to argue that its conduct wasn’t predatory, and Microsoft <a href="https://www.investopedia.com/ask/answers/08/microsoft-antitrust.asp">lost the case</a>. </p>
<p>As successful and intuitive as the strategy is, courts are surprisingly <a href="https://law.justia.com/cases/federal/appellate-courts/F2/744/588/459746/">reluctant</a> to hang their antitrust rulings on internal documents revealing an executive’s intent.</p>
<h2>The problem with relying too much on internal emails</h2>
<p>Judges often say that <a href="https://openjurist.org/892/f2d/1355/morgan-v-l-ponder-k">antitrust law is interested only</a> in the economic effects of a business’s conduct – such as whether it suppressed competition – not the motives of its executives. <a href="https://law.justia.com/cases/federal/appellate-courts/F2/744/588/459746/">Critics have argued</a> that CEOs are not economists and are sometimes prone to chest-thumping braggadocio, making their emails and other communications better for wowing juries than making an economic argument. </p>
<p>Judges and scholars worry that juries will see all <a href="https://openjurist.org/881/f2d/1396/aa-poultry-farms-inc-v-rose-acre-farms-inc">aggressive comments as evidence</a> of exclusionary intent. But you can “destroy” a competitor by outdoing him; economists call that competition. </p>
<p>For example, Facebook’s <a href="https://www.theverge.com/2020/7/29/21345723/facebook-instagram-documents-emails-mark-zuckerberg-kevin-systrom-hearing">employee manual reads</a>: “If we don’t create the thing that kills Facebook, something else will.” That sounds ominous, but creating things to keep rival startups at bay <a href="https://scholarship.law.columbia.edu/cgi/viewcontent.cgi?article=2768&context=faculty_scholarship">is exactly what the antitrust laws</a> want Facebook to do – innovate. </p>
<p>More fundamentally, relying on statements like these – where a defendant seems to reveal subjective intent – is controversial because the <a href="https://scholarship.law.bu.edu/cgi/viewcontent.cgi?article=1668&context=faculty_scholarship">law is unclear</a> about why or whether a defendant’s intent to suppress competition matters at all. The clearest statement we get on the issue – from <a href="https://law.justia.com/cases/federal/appellate-courts/F2/148/416/1503668/">U.S. v. Alcoa</a> – is enigmatic: “To read the [law] as demanding any ‘specific’ intent, makes nonsense of it, for no monopolist monopolizes unconscious of what he is doing.” </p>
<p>Even lawyers haven’t been able to figure out exactly what that means.</p>
<figure class="align-center ">
<img alt="Facebook CEO Mark Zuckerberg speaks via video conference during a House Judiciary subcommittee hearing on antitrust in Washington on July 29, 2020." src="https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/375780/original/file-20201217-23-1648aur.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Lawmakers have been increasingly grilling tech companies like Facebook in recent years.</span>
<span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/FacebookAntitrust/cbfdeffc37184e40a4ea1e17ff17edf8/photo?Query=Zuckerberg%20AND%20antitrust&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=30&currentItemNo=1">Graeme Jennings/Washington Examiner via AP</a></span>
</figcaption>
</figure>
<h2>The role of intent as evidence</h2>
<p>On the other hand, other types of evidence may not be enough to make an antitrust case.</p>
<p>The inquiry in a monopolization case is often framed as whether the monopolist enjoys its market position because it excluded rivals or because it made a better or cheaper product. The difficulty with using only objective market evidence to answer that question is that the evidence usually points in both directions. </p>
<p>Defendants can almost always identify some product improvement that came from their conduct, muddying the waters of the plaintiff’s story of exclusion. In the Facebook case, the <a href="https://about.fb.com/news/2020/12/lawsuits-filed-by-the-ftc-and-state-attorneys-general-are-revisionist-history/">company has pointed</a> to Instagram’s growing user base and improved interface during its time under Facebook’s control. </p>
<p>So in most monopolization cases, courts get stuck if they try to use only market facts to answer the ultimate question: Did the monopolist flourish because of the improvements or because of diminished competition?</p>
<p>That’s where “<a href="https://scholarlycommons.law.case.edu/cgi/viewcontent.cgi?article=1435&context=caselrev">intent evidence</a>” – information about what a defendant was thinking – can help. If a CEO intended a merger to insulate her company from competition, it likely did in fact insulate the company from competition. Judges will attribute some of the company’s dominance to exclusion, and that violates the antitrust laws.</p>
<p>That’s why judges will turn to evidence of intent, especially if it is more than just economically ambiguous declarations of war against rivals.</p>
<h2>Neutralizing competitors</h2>
<p>Unfortunately for Facebook, Zuckerberg’s emails are <a href="https://www.businessinsider.com/ftc-facebook-lawsuit-makes-zuckerberg-emails-public-instagram-whatsapp-competition-2020-12?utm_source=copy-link&utm_medium=referral&utm_content=topbar">explicit and detailed</a> in describing his desire to avoid competing with Instagram and WhatsApp. The court will find that relevant – and possibly damning.</p>
<p>For example, in the months leading up to the acquisition, Facebook’s chief financial officer outlined three reasons for buying Instagram:</p>
<blockquote>
<p>“1) neutralize a potential competitor?… 2) acquire talent?… 3) integrate their products with ours in order to improve our service?” Zuckerberg responded, “It’s a combination of (1) and (3).” </p>
</blockquote>
<p>Zuckerberg goes on to explain Instagram’s competitive threat at length. By the time he gets to the product improvement explanation, he’s changed his mind. “(3) is also a factor, but in reality we already know [Instagram’s] social dynamics and we will integrate them in the next 12-24 months anyway.”</p>
<p>[<em>Deep knowledge, daily.</em> <a href="https://theconversation.com/us/newsletters/the-daily-3?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=deepknowledge">Sign up for The Conversation’s newsletter</a>.]</p>
<p>After the Microsoft case, many companies adopted communications policies that discourage the creation of documents just like these. Google, for one, circulates a five-point antitrust “communications safety” <a href="https://www.documentcloud.org/documents/7016657-Five-Rules-of-Thumb-for-Written-Communications.html">policy</a> to employees. </p>
<p>What I find truly remarkable about this case is not the volume of internal quotes in the complaint, but the paper trail a sophisticated CEO like Zuckerberg created of Facebook’s transgressions – which is now why a federal antitrust lawsuit poses an existential threat to his company.</p><img src="https://counter.theconversation.com/content/151979/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rebecca Haw Allensworth does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>While relying on internal documents can be controversial, Zuckerberg’s emails are so detailed and specific that they’re impossible to ignore.Rebecca Haw Allensworth, Professor of Law, Vanderbilt UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1467462020-09-24T20:01:44Z2020-09-24T20:01:44ZVital Signs. Google shouldn’t subsidise journalism, but the government could<p>You might have missed it – what with the biggest recession since the 1930s and a pandemic going on – but there may be big, and bad, changes happening to a media landscape near you.</p>
<p>Right now the Australian government is considering amending the Competition and Consumer Act 2010 to force Google and Facebook to pay local commercial media organisations for the sharing of their content on the digital platforms.</p>
<p>The <a href="https://www.accc.gov.au/system/files/Exposure%20Draft%20Bill%20-%20TREASURY%20LAWS%20AMENDENT%20%28NEWS%20MEDIA%20AND%20DIGITAL%20PLATFORMS%20MANDATORY%20BARGAINING%20CODE%29%20BILL%202020.pdf">News Media and Digital Platforms Bargaining Code</a> proposed by the Australian Competition and Consumer Commission will require the tech and media companies to make terms through “mandatory binding arbitration”. It will also oblige them to divulge parts of their core intellectual property (such Google’s search algorithm).</p>
<p>It has been lauded as a world-first in addressing the power imbalance between the platforms and traditional news organisations. </p>
<p>Champions such as commission chief Rod Sims argue it’s a simple matter of forcing Google and Facebook to pay a fair price for extracting value from journalism for which they pay nothing. As <a href="https://www.afr.com/companies/media-and-marketing/has-rod-sims-cracked-the-digital-code-20200804-p55i9x">Sims put it</a>:</p>
<blockquote>
<p>What this was all about was the imbalance in bargaining power, the market failure that comes from that, and underpayment for news having a detrimental effect on Australian society.</p>
</blockquote>
<p>Who could argue with that? Even federal treasurer Josh Frydenberg has described it as “a question of fairness”.</p>
<p>But from an economic standpoint the whole bargaining code is hopelessly confused. It fails to properly understand the source of competitive pressure for media companies, and why they have lost revenues over the last 15 years.</p>
<p>Mandatory binding arbitration between tech and media companies is also a completely inappropriate policy tool to achieve the public policy goal of fostering high-quality journalism.</p>
<p>As I have <a href="https://promarket.org/2020/09/21/australias-news-media-digital-platforms-bargaining-code-great-politics-questionable-economics/">written about in detail</a> for the Stigler Center at the University of Chicago Booth School of Business, making the code law risks doing serious harm to Australian consumers while shovelling money to large media companies like Nine Entertainment and News Corp Australia.</p>
<p>Faced with the prospect of having to divulge key intellectual property, it would not be surprising if Google and Facebook simply prefer not to be in the Australian market. Millions of Australians using Google, YouTube and Facebook will lose out.</p>
<h2>Media revenue sinking</h2>
<p>Between 2002 and 2018, consulting firm <a href="https://alphabeta.com/wp-content/uploads/2020/09/australian-media-landscape-report.pdf">AlphaBeta estimates</a> total annual revenue for Australian newspapers fell from A$4.4 billion to A$3.0 billion. Almost all of this was due to lost classified advertising revenue, worth A$1.5 billion in 2002 but just A$200 million in 2018. </p>
<p>“That’s Google’s fault,” you might cry.</p>
<p>Actually no. The vast bulk of lost classified advertising revenue was due to online “pure-plays” such as Seek, Domain and Carsales. Google and Facebook took basically none of this revenue.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/billions-lost-boards-to-blame-colleen-ryan-on-the-rise-and-fall-of-fairfax-15288">Billions lost, boards to blame: Colleen Ryan on the rise and fall of Fairfax</a>
</strong>
</em>
</p>
<hr>
<p>The media companies were sitting on a gold mine of classified advertising. Then there was massive technological disruption due to the internet and smart phones. </p>
<p>That, as they say in the classics, is show business.</p>
<p>It doesn’t justify making companies who happened to succeed in an adjacent space at the same time fork over a chunk of their revenues.</p>
<h2>But aren’t tech companies ‘stealing’ content?</h2>
<p>If big tech companies were somehow allowing you and me free access to content we would otherwise have to pay for, there might be a case to answer.</p>
<p>That would be like Google Maps not only giving you directions to a restaurant but the means to also avoid paying for your meal.</p>
<p>But using a search engine does not allow you to get free meals, nor to get around a news organisation’s pay wall. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-not-fair-and-it-wont-work-an-argument-against-the-accc-forcing-google-and-facebook-to-pay-for-news-145391">It's not 'fair' and it won't work: an argument against the ACCC forcing Google and Facebook to pay for news</a>
</strong>
</em>
</p>
<hr>
<p>In fact, having their content pop up in search results, or shared on social media, helps Australian media companies to attract readers and sell subscriptions – something that now accounts for roughly half the revenues of some leading players such as The Australian.</p>
<p>All you get for “free” is a snippet of a line or two from the search. </p>
<p>For instance, when I searched for news about recently deceased US Supreme Court Justice Ruth Bader Ginsburg, I got this:</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=107&fit=crop&dpr=1 600w, https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=107&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=107&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=135&fit=crop&dpr=1 754w, https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=135&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/359755/original/file-20200924-20-1g8f7jj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=135&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>If you can figure out the full content of the article from that snippet, you should be using your superpowers for other, more lucrative purposes.</p>
<h2>Beware the politics</h2>
<p>There is a very real risk this misguided code will end up becoming law. </p>
<p>An overzealous regulator has proposed something that stands to benefit the big media companies, who are – not surprisingly – strongly for it.</p>
<p>Those same media companies have huge influence over public perceptions and the fate of politicians. It will be a brave elected representative who pushes back on the proposed code and draft legislation.</p>
<p>But if politicians were serious about resolving the real issue at stake in all of this, they would act more directly.</p>
<p>Like newspapers all around the world, Australian media and journalists are under pressure – and one thing most people agree on is that high-quality news and journalism is critical to a well-functioning democracy. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/platform-regulation-in-australia-is-just-the-start-facebook-and-google-are-fighting-a-global-battle-145748">Platform regulation in Australia is just the start. Facebook and Google are fighting a global battle</a>
</strong>
</em>
</p>
<hr>
<p>Whatever the market forces that have slashed the funding of such journalism, there is a strong case for government intervention. But if the Australian government wants to subsidise high-quality journalism, it should do it itself. </p>
<p>With the 10-year bond rate less than 1%, it would cost the government just A$18 million a year to fund the interest bill on A$2 billion of media subsidies a year. That’s 72 cents per Australian a year.</p>
<p>And all without driving away the hugely valuable services of companies like Google and Facebook that Australian consumers love.</p><img src="https://counter.theconversation.com/content/146746/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Making Google and Facebook pay Australian news publishers might be good politics, but it is odd economics.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1443792020-09-14T15:05:43Z2020-09-14T15:05:43ZHow Nigeria’s new competition law will benefit the economy - and what to watch for<figure><img src="https://images.theconversation.com/files/357454/original/file-20200910-24-xtd4iu.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">An unregulated economy leaves the economically disadvantaged at the mercy of the rich and powerful </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-illustration/judges-gavel-block-against-flag-nigeria-1344673268">Novikov Aleksey/Shutterstock </a></span></figcaption></figure><p>Competition laws protect consumers and create <a href="https://www.academia.edu/8822080/The_Need_and_the_Challenges_to_the_Establishment_of_a_Competition_Law_Regime_in_Nigeria">confidence</a> in an economy. It’s a signal to investors and entrepreneurs that a market is fair and open. And the reward for countries that regulate competition is that on average they <a href="https://pdfs.semanticscholar.org/b5a0/f7df84ba435d90e5565225ae3db00e93c387.pdf">produce more</a> value per capita than others.</p>
<p>In Nigeria the competition law regime has been inadequate compared with its economy’s size and complexity. It hasn’t had a comprehensive law addressing anti-competitive trade practices like monopoly, price regulation and abuse of dominance.</p>
<p>The government previously had a monopoly over certain key sectors of the economy, such as telecommunications and electric power. After these were largely privatised, anti-competitive activities remained evident. These raised entry barriers, limited innovation and reduced quality in the market.</p>
<p>After <a href="https://pdfs.semanticscholar.org/2b89/5cf06379dfec95e8447e93e3b1b34eb02867.pdf">earlier unsuccessful attempts</a>, the Nigerian government has now enacted a national competition law, <a href="http://fccpc.gov.ng/guidelines/documents/">the Federal Competition and Consumer Protection Act 2018</a>. Our <a href="https://www.tandfonline.com/doi/full/10.1080/03050718.2020.1770617?scroll=top&needAccess=true">research</a> looks at how effective this is likely to be in creating a fair and efficient market that benefits Nigerian businesses and consumers alike. </p>
<h2>A few dominant players</h2>
<p>Lack of competition regulation created outright dominance of a few players in some industries.</p>
<p>In television, for example, DStv Nigeria was able to control pricing mechanisms. <a href="https://medium.com/@ayokunleojelade/competition-law-and-the-control-of-monopoly-in-nigeria-853f6d57886b">Between 2009 and 2017</a>, prices increased eight times. </p>
<p>A major cement producer, <a href="https://www.dangotecement.com/">Dangote Cement</a>, is said to have <a href="https://medium.com/@ayokunleojelade/competition-law-and-the-control-of-monopoly-in-nigeria-853f6d57886b">forced the market cement price</a> up in 2017. </p>
<p>Similarly in telecommunications, MTN has been accused of <a href="https://www.bloomberg.com/news/articles/2019-10-22/nigeria-mulls-action-to-boost-competition-in-telecoms-industry">undermining competition.</a>.</p>
<p>President Muhammadu Buhari <a href="http://fccpc.gov.ng/news-events/releases/2019/02/06/federal-competition-and-consumer-protection-bill/">assented</a> to the Federal Competition and Consumer Protection Act in February 2019. It established the <a href="http://fccpc.gov.ng/">Federal Competition and Consumer Protection Commission</a>, which oversees consumer protection and competition issues in all entities in Nigeria. These include commercial and government bodies or agencies. </p>
<h2>Powers and potential problems</h2>
<p>Competition exists when no single buyer or seller can control the price in the market. This occurs when there are enough agents active in the market. New agents can enter the market if they want to and price is thus <a href="http://cpparesearch.org/nu-en-pl/competition-policy-nigerian-commercial-governance/">determined by the market</a> as a whole. </p>
<p>The <a href="http://fccpc.gov.ng/guidelines/documents/">Act</a> provides rules to minimise market distortions across all sectors. It also ensures that fair play is respected. It prohibits unfair business practices that are likely to reduce competition and lead to higher prices, reduced quality or levels of service, or less innovation. </p>
<p>But there are some issues that could affect the new act’s efficiency. One is the domination of the Act over sector specific competition legislation. The advantage is that it brings a uniform perspective and jurisprudence to competition issues in Nigeria. On the other hand, some competition issues are sector based. This is why various government agencies have standards and laws for regulating competition in their specific sectors. </p>
<p><a href="https://www.tandfonline.com/doi/abs/10.1080/03050718.2020.1770617?af=R&journalCode=rclb20">For example</a> the <a href="https://nerc.gov.ng/">Nigerian Electricity Regulatory Commission</a> regulates the electricity sector while the <a href="https://www.ncc.gov.ng/">Nigerian Communications Commission</a> deals with the telecommunication sector. The <a href="https://sec.gov.ng/">Securities and Exchange Commission</a> regulates the capital market and the <a href="https://www.cbn.gov.ng/">Central Bank of Nigeria</a> oversees banking. The domination of the Act over sector specific legislation has the tendency to create an overlap and interfere with the roles and functions of these agencies.</p>
<p>To guard against this power tussle, the Act allows for negotiation of agreements with sector specific regulators. It’s also possible to harmonise regulations to resolve any inconsistencies in enforcement.</p>
<p>The <a href="http://fccpc.gov.ng/">Federal Competition and Consumer Protection Commission</a> was set up to administer and enforce the Act. It can also conduct quality tests on consumer goods as it deems necessary. It can compel makers and suppliers to certify that they have met all standards for goods and services, and warn of any health hazards. These powers are similar to those of the Standards Organisation of Nigeria and the National Agency for Food and Drug Administration and Control. There is an overlap of function and authority, so all these agencies will have to work together. </p>
<p>Another issue is funding of the new regulatory regime. Rather than depending exclusively on budgetary allocation, a better way of funding could have been through a combination of different sources such as general revenues, fees or fines. This would <a href="https://www.tandfonline.com/doi/abs/10.1080/03050718.2020.1770617?af=R&journalCode=rclb20">make it more difficult</a> for any single source of funding to dominate the budget and influence the Commission’s activities.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/how-a-lack-of-competition-in-south-africas-private-health-sector-hurts-consumers-125380">How a lack of competition in South Africa's private health sector hurts consumers</a>
</strong>
</em>
</p>
<hr>
<p>The new Act is applicable to certain conduct outside Nigeria. This could bring up questions about whose laws apply. To clear up any ambiguity, Nigeria should publish the procedure for applying its competition law internationally.</p>
<p>In addition, the powers of the president of Nigeria to regulate prices are at variance with the power of the Price Control Board to fix prices of commodities as provided in the Price Control Act. </p>
<p>The new competition law has given a lot of powers to the new, untested Commission. It will have to be staffed by professionals who are knowledgeable in antitrust laws, economics and intellectual property and representatives of the various sectors of production.</p>
<p>The importance of the legal framework for competition regulation in Nigeria cannot be over emphasised. An unregulated economy leaves the economically disadvantaged at the mercy of the rich and powerful. </p>
<p>That is not only dangerous to the economy but also dangerous to democracy. This is the case in Nigeria today as the nation is sliding into a two-class society: <a href="https://www.kitsapdailynews.com/letters/the-dangers-of-unregulated-laissez-faire-capitalism/">rich wealth hoarders and impoverished workers</a>.</p><img src="https://counter.theconversation.com/content/144379/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Oluchukwu Precious Obioma does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Lack of competition regulation created outright dominance of a few players in some industries.Oluchukwu Precious Obioma, PhD candidate, Department of Commercial and Corporate Law, Faculty of Law, University of NigeriaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1296432020-01-16T14:39:39Z2020-01-16T14:39:39ZCar wars: how Nokia could find itself at centre of EU investigation over technology patents<figure><img src="https://images.theconversation.com/files/310453/original/file-20200116-181608-bj50xf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Mercedes' new electric SUV is made by Daimler which has complained to the European Commission about Nokia.</span> <span class="attribution"><span class="source">Daimler AG</span></span></figcaption></figure><p>Thanks to cutting-edge digital technology, cars are increasingly like “<a href="https://www.economist.com/technology-quarterly/2014/09/04/smartphones-on-wheels">smartphones on wheels</a>”, so manufacturers need to have access to the latest patented 4G and 5G technologies essential to navigation and communications. But often the companies that hold the patents are reluctant to license them because manufacturers will not accept the high fees involved, which leads to patent disputes and licensing rows.</p>
<p>Such rows are now commonplace, but in the past, large car manufacturers often shied away from expensive litigation or formal complaints when issues of patent infringement arose, opting instead to settle out of court. But times have changed. </p>
<p>Car makers and their suppliers are becoming more conscious of the role of competition authorities and the legal options available if patent owners abuse their monopolistic rights. In the EU there is a robust body of <a href="https://www.europarl.europa.eu/factsheets/en/sheet/82/competition-policy">competition law</a> designed to fight <a href="https://www.economicsonline.co.uk/Business_economics/Cartels.html">cartels</a> and monopolistic behaviours.</p>
<h2>Nokia v everyone</h2>
<p>One such battle involves Nokia, a Finnish telecoms company, over licences for patented technologies that are essential to standards for navigation, vehicle communications and self-driving cars.</p>
<p>Specifically, a group of 27 companies, including Daimler, Ford, BMW, Dell, Cisco, Continental, Lenovo and Sky, has <a href="https://www.ft.com/content/46e0e4c0-20ea-11ea-92da-f0c92e957a96">complained</a> to the European Commission about alleged abuses of the patent system that jeopardise the development of self-driving vehicles and connected devices.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/310279/original/file-20200115-134797-1r61480.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/310279/original/file-20200115-134797-1r61480.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=379&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310279/original/file-20200115-134797-1r61480.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=379&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310279/original/file-20200115-134797-1r61480.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=379&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310279/original/file-20200115-134797-1r61480.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=476&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310279/original/file-20200115-134797-1r61480.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=476&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310279/original/file-20200115-134797-1r61480.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=476&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Best known for its early mobile phones, Nokia is one of the world’s leading telecoms companies.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Nokia_Sao_Paulo_Flagship.jpg">Eightinc</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Although the complaint did not mention Nokia by name, it clearly pointed the finger at the Finnish multinational and its <a href="https://www.neweurope.eu/article/apple-bmw-dell-ford-urge-brussels-to-tackle-unfair-patent-deals">refusal to license</a> its standard essential patents to car companies and component suppliers on acceptable terms. </p>
<p>Refusals to license intellectual property rights are not a new phenomenon; when they have occurred in the past, <a href="https://ec.europa.eu/competition/elojade/isef/">EU competition authorities</a> have been strict in <a href="http://news.bbc.co.uk/1/hi/business/3563697.stm">imposing big fines</a> on companies that unreasonably refuse to share their technologies.</p>
<p>Nokia owns several patents protecting technologies on which current mobile phone standards are based, such as wifi, 3G, 4G, and the latest 5G. This means that companies requiring these technologies for their products must obtain a licence from the Finnish company. Nokia’s patent enforcement strategy appears to be quite aggressive; it has begun several legal actions, particularly <a href="http://www.fosspatents.com/2019/09/at-least-five-german-nokia-v-daimler.html">against Daimler</a>, claiming patent infringement on the basis that the defendants were using its patented technology without a licence.</p>
<p>Nokia’s refusal to license such patents has been disputed by a variety of industry players. Complaints have been lodged with the European Commission by <a href="https://www.reuters.com/article/us-eu-daimler-nokia-patents/daimler-asks-eu-antitrust-regulators-to-probe-nokia-patents-idUSKCN1RA2KF">Daimler</a>, electronics company <a href="https://www.bury.com/en/business/news/up-to-date/news-detail/news/bury-erwartet-faire-lizenzierung/?tx_news_pi1%5Bcontroller%5D=News&tx_news_pi1%5Baction%5D=detail&cHash=1ad7e446566bd6bfc64d7fe32344c0f5">Bury Technologies</a>, automobile parts manufacturer <a href="https://www.ratnerprestia.com/2019/05/29/continental-makes-a-big-splash-in-the-connected-car-patent-pool-over-oem-only-licensing-practices/">Continental</a> as well as automotive supplier <a href="https://www.businesstelegraph.co.uk/continental-valeo-seek-eu-antitrust-action-against-nokia/">Valeo</a> and digital security company Gemalto. All claim that Nokia has refused to license their patents on the principle of “fair economic conditions”, which means they believe the licensing fees demanded by Nokia are too high and unfair, amounting to an illegal abuse of its dominant position and violating EU competition rules.</p>
<p>Some commentators have <a href="https://www.politico.eu/pro/competitive-edge-vestagers-first-conflict-of-interests/">argued</a> that an investigation into Nokia’s licensing scheme could have a negative impact on Europe’s strategic autonomy when it comes to 5G, as Nokia and its competitor Ericsson are Europe’s major 5G players. However, the EC may soon begin a formal competition procedure aimed at shedding light on Nokia’s practices.</p>
<h2>Competition and consumers</h2>
<p>As highlighted in the <a href="https://wccftech.com/patents-row-with-nokia-turns-ugly-as-apple-bmw-and-25-other-companies-write-a-protest-letter/">letter</a> sent by the 27 companies to the EC, the practice of some patent owners to grant licences only to certain entities prevents companies across the <a href="https://www.wired.co.uk/article/internet-of-things-what-is-explained-iot">Internet of Things</a> from investing in research and development.</p>
<p>It is a practice – the letter argues – that stifles innovation, discourages newcomers to the market and ties suppliers to existing customers, which means European companies and consumers may be exposed to higher prices than they would be in a more competitive market.</p>
<p>The existence of such patents – and associated litigation – has potentially disruptive consequences for the manufacture, marketing and distribution of complex “networked” products that include a variety of functions developed and patented by different companies – for example, smartphones that incorporate camera, video, web browser, wireless, text messaging and so on.</p>
<p>By enforcing these patents, owners can often stymie competitors (and their suppliers) and prevent them from launching products that use the same standards. This raises serious concerns over competition in the marketplace and the need to ensure that the Internet of Things industry can develop.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/310292/original/file-20200115-134814-1wdpype.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/310292/original/file-20200115-134814-1wdpype.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1073&fit=crop&dpr=1 600w, https://images.theconversation.com/files/310292/original/file-20200115-134814-1wdpype.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1073&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/310292/original/file-20200115-134814-1wdpype.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1073&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/310292/original/file-20200115-134814-1wdpype.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1349&fit=crop&dpr=1 754w, https://images.theconversation.com/files/310292/original/file-20200115-134814-1wdpype.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1349&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/310292/original/file-20200115-134814-1wdpype.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1349&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Disputes can disrupt manufacture of ‘networked’ products like smartphones with functions patented by different companies.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/new-realistic-mobile-smart-phone-modern-693573352">Shutterstock</a></span>
</figcaption>
</figure>
<h2>Striking a fair balance</h2>
<p>An appropriate balance must be reached that ensures that there are still incentives for companies like Nokia to keep developing new technologies (meaning they can still make decent profits), while allowing fair competition and consumer protection. This can be achieved by the endorsement of fair licensing practices on the part of the patent owner, which is what Daimler and the other complainants claim Nokia is failing to do.</p>
<p>But patent holders of standard technologies are required to give <a href="https://www.etsi.org/images/files/IPR/etsi-ipr-policy.pdf">an irrevocable undertaking</a> that they are prepared to grant competitors licences on terms that are <a href="https://ec.europa.eu/jrc/en/publication/eur-scientific-and-technical-research-reports/fair-reasonable-and-non-discriminatory-frand-licensing-terms-research-analysis-controversial">fair, reasonable, and non-discriminatory</a>. Daimler and its suppliers argue that Nokia’s licensing behaviour doesn’t comply with these obligations, which is why they have filed <a href="https://ec.europa.eu/competition/antitrust/overview_en.html">antitrust</a> complaints with the European Commission.</p>
<p>As the EC has <a href="http://news.bbc.co.uk/1/hi/business/3563697.stm">severely condemned</a> refusals to share intellectual property with competitors in the past, it is now possible that Nokia will face a similar fate. In the seminal 2015 case <a href="https://www.nortonrosefulbright.com/en/knowledge/publications/8f90efbd/the-eu-court-of-justice-judgment-in-huawei-v-zte---important-confirmation-of-practical-steps-to-be-taken-by-standard-essential-patent-holders-before-seeking-injunctions">Huawei v ZTE</a>, the EU’s top court found that every player is entitled to obtain a patent licence for standard technology on fair and reasonable terms.</p>
<p>Perhaps fearing a negative reaction by the European Commission, in November 2019, Nokia <a href="https://uk.reuters.com/article/us-eu-antitrust-nokia-daimler/nokia-says-working-to-end-patent-licensing-row-with-daimler-others-idUKKBN1Y32AP">declared</a> that it was in talks with Daimler and the other complainants about settling the controversy via <a href="https://www.reuters.com/article/us-eu-antitrust-nokia-daimler/nokia-daimler-others-agreed-to-mediation-to-resolve-licensing-dispute-idUSKBN1YG1CK">mediation</a>.</p>
<p>If no settlement guaranteeing the right of Daimler and the other complainants to access these essential technologies is reached, Nokia could risk being sanctioned for anti-competitive behaviour.</p><img src="https://counter.theconversation.com/content/129643/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Enrico Bonadio of City, University of London received European Parliament funding to write a technical report on Standard Essential Patents during 2018-19. He is a Fellow of the Innovators Network Foundation during 2019-20</span></em></p><p class="fine-print"><em><span>Dr Luke McDonagh of City, University of London received European Parliament funding to write a technical report on Standard-essential patents during 2018-19. He is a Fellow of the Innovators Network Foundation during 2019-20.</span></em></p>Car makers need access to the latest telecoms technology, but Nokia refuses to grant licenses because manufacturers won’t pay up. So the disputes begin…Enrico Bonadio, Senior Lecturer in Law, City, University of LondonLuke McDonagh, Senior Lecturer in Law, City, University of LondonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1241202019-09-30T12:56:39Z2019-09-30T12:56:39ZThe fightback against Facebook is getting stronger<p>Facebook leader Mark Zuckerberg recently took the <a href="https://www.reuters.com/article/us-facebook-lawmakers/facebook-ceo-zuckerberg-meets-trump-seeks-to-mend-fences-in-washington-idUSKBN1W42DM">unusual step</a> of visiting lawmakers in Washington, including President Donald Trump in the White House. The reason? Congress’s anti-trust sub-committee has started <a href="https://www.reuters.com/article/us-tech-antitrust-congress/apple-facebook-amazon-google-emails-demanded-in-u-s-house-panel-probe-idUSKCN1VY1FX">demanding documents</a> from Facebook and other big tech firms. It’s part of the committee’s investigation into whether dominant tech firms are acting anti-competitively. And Zuckerberg’s trip suggests the company is worried.</p>
<p>The increasing pressure coming from the US Congress is just one example of how governments all over the world are starting to fight back against the power of Facebook. The company is facing fines, regulation and even calls for it to be broken up. But regulators and politicians still face a significant challenge in reining in Facebook’s financial, political and social might.</p>
<p>In summer 2019, Facebook was hit by a <a href="https://www.theguardian.com/technology/2019/jul/24/facebook-to-pay-5bn-fine-as-regulator-files-cambridge-analytica-complaint">US$5 billion fine</a> from the US Federal Trade Commission (FTC), as well as a <a href="https://www.bloomberg.com/news/articles/2019-07-24/facebook-agrees-to-pay-100-million-to-settle-charges-with-sec">US$100m fine</a> from the Securities and Exchanges Commission over its involvement in the <a href="https://theconversation.com/uk/topics/cambridge-analytica-51337">Cambridge Analytica</a> data scandal. The company also possibly <a href="https://www.wsj.com/articles/eu-nears-decisions-in-facebook-privacy-cases-11565602202">faces fines</a> of further billions in Europe for violating data protection laws.</p>
<p>But Facebook made US$16.6 billion from advertising in the three months to June 30, 2019 alone. So even such huge fines don’t necessarily amount to much of a punishment. However these penalties are only one check on Facebook’s power, and governments are increasingly willing to take action.</p>
<p>Alongside Congress’s review, the <a href="https://edition.cnn.com/2019/09/11/tech/ftc-big-tech-antitrust-investigations/index.html">FTC</a>, the <a href="https://www.theguardian.com/technology/2019/jul/23/tech-companies-antitrust-review">Department of Justice</a> and a <a href="https://www.theguardian.com/technology/2019/sep/06/facebook-google-antitrust-privacy-investigations-us">number of state attorneys</a> are investigating big tech firms including Facebook for possible anti-trust violations. The UK <a href="https://www.gov.uk/cma-cases/online-platforms-and-digital-advertising-market-study">Competition and Markets Authority</a> is also carrying out a market study into online platforms and the digital advertising industry. In Germany, Facebook <a href="https://www.reuters.com/article/us-facebook-germany/german-cartel-office-to-take-facebook-case-to-high-court-idUSKCN1VG1AJ">is fighting</a> an anti-trust action in the courts. And <a href="https://uk.reuters.com/article/us-eu-facebook-antitrust/eu-antitrust-regulators-raise-concerns-about-facebooks-libra-currency-sources-idUKKCN1VB1BQ">reports suggest</a> EU anti-trust regulators are interested in scrutinising the company’s recently launched <a href="https://theconversation.com/uk/topics/libra-72410">cryptocurrency Libra</a>.</p>
<p>More generally, the EU has taken anti-trust action against several other big tech firms. Its recently re-appointed competition commissioner, Margrethe Vestager, <a href="https://uk.reuters.com/article/uk-eu-antitrust-data/eu-may-need-to-regulate-tech-giants-data-use-eu-antitrust-chief-idUKKCN1VY1HU">said</a> that data use by tech companies may need further regulation.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/294813/original/file-20190930-194852-fkos5z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/294813/original/file-20190930-194852-fkos5z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=431&fit=crop&dpr=1 600w, https://images.theconversation.com/files/294813/original/file-20190930-194852-fkos5z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=431&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/294813/original/file-20190930-194852-fkos5z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=431&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/294813/original/file-20190930-194852-fkos5z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=541&fit=crop&dpr=1 754w, https://images.theconversation.com/files/294813/original/file-20190930-194852-fkos5z.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=541&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/294813/original/file-20190930-194852-fkos5z.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=541&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Facebook is facing increasing calls for it to be broken up.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/march-29-2018-facebook-problems-troubles-1057346714?src=ekx3ovl6vK0s8ayxqdtwLQ-1-0">M-SUR/Shutterstock</a></span>
</figcaption>
</figure>
<p>It’s not just Facebook’s economic monopoly that politicians are worried about, however. Parliamentarians from a growing number of jurisdictions including Argentina, Canada, Chile, Estonia, Germany, Ireland, Singapore, Ecuador, Mexico, Morocco, Trinidad and Tobago, and the UK are now regularly meeting as the <a href="https://www.parliament.uk/business/committees/committees-a-z/commons-select/digital-culture-media-and-sport-committee/news/international-grand-committee-evidence-17-19/">International Grand Committee</a>. Their goal is to examine the impact of social media, and particularly Facebook, on democracy.</p>
<p>Facebook is now the primary medium for political advertising and targeting. The firm has rolled out <a href="https://edition.cnn.com/2019/08/28/tech/facebook-political-ads-2020/index.html">stricter rules</a> and <a href="https://www.bbc.co.uk/news/uk-49701027">recently took down</a> a UK Conservative Party ad for breaching them. But there are now demands in a <a href="https://www.abc.net.au/triplej/programs/hack/how-does-political-advertising-blackout-laws-work/1111560">number of countries</a> to regulate social media advertising by political parties through statutory regulation, rather than relying on Facebook’s internal rules. In fact, Zuckerberg himself <a href="https://www.facebook.com/4/posts/10107013839885441?sfns=m">has called</a> for legislation in this area.</p>
<p>New rules have been introduced this year <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/FlagPost/2019/April/Authorising_online_political_communicatio">in Australia</a> and <a href="https://www.elections.ca/content.aspx?section=pol&dir=regifaq&document=index&lang=">Canada</a>. Meanwhile the UK government has yet to implement proposals from <a href="https://www.gov.uk/government/news/government-safeguards-uk-elections">its Cabinet Office</a>.</p>
<p><a href="https://www.cfr.org/backgrounder/hate-speech-social-media-global-comparison">Many countries</a> including Australia, India and Singapore have developed new measures to take down criminal or terrorist content or disinformation from social networks. And other governments are <a href="https://www.gov.uk/government/consultations/online-harms-white-paper">looking at the issue</a>. This is a tricky area for regulation because questions remain around exactly how to define offending material and what processes can be put in place that respect human rights. </p>
<p>Many <a href="https://psmag.com/social-justice/understanding-facebooks-failure-to-deal-with-hate-speech">commentators argue</a> that Facebook needs to do far more in this area but it is not in the firm’s financial interest to do so. Facebook is effectively being subsidised for the costs of its own failures by users, media organisations and others who flag up problem materials. </p>
<p>Instead, goes the argument, Facebook the polluter should pay to address the online pollution that it is creating. As a result a <a href="https://taxfoundation.org/digital-taxes-europe-2019">number of countries</a> are discussing levies and enhanced taxes, not least because of Facebook’s accounting structure that enables it to pay as little as <a href="https://www.theguardian.com/technology/2018/oct/08/facebook-uk-tax-bill-sales-margaret-hodge">1% of its revenue</a> in tax.</p>
<h2>“Exploitative abuse”</h2>
<p>The bigger problem is the one that anti-trust investigations are looking at. This is the fact that, along with Google, Facebook <a href="https://marketingland.com/almost-70-of-digital-ad-spending-going-to-google-facebook-amazon-says-analyst-firm-26256">soaks up the bulk</a> of online and particularly mobile advertising. If you want to advertise online, you are effectively obliged to use its services. The German Cartel Authority, the Bundeskartellamt, has called Facebook’s combination of user data drawn from a variety of data sources, “<a href="https://www.bundeskartellamt.de/SharedDocs/Meldung/EN/Pressemitteilungen/2019/07_02_2019_Facebook.html">an exploitative abuse</a>” of its dominant position.</p>
<p>The difficulty is in challenging that position given the global nature of the internet and the way the most successful internet firms tend to inevitably <a href="https://www.london.edu/lbsr/nine-reasons-why-tech-markets-are-winner-take-all">attract a majority</a> of users. One solution would be to force Facebook to sell its other social network apps, WhatsApp, Instagram and Facebook Messenger so it didn’t have so many sources of data on users.</p>
<p>But, as the Australian Competition and Consumer Commission <a href="https://www.accc.gov.au/system/files/Digital%2520platforms%2520inquiry%2520-%2520final%2520report.pdf">has highlighted</a>, another significant problem is the fact its business is vertically integrated. This means it controls different parts of the advertising industry. It is effectively a social media network, a media distribution company, a media buying company, an advertising exchange and a data analytics company. For this reason, <a href="https://blogs.lse.ac.uk/mediapolicyproject/2018/05/02/how-to-break-up-facebook/">some argue</a> that structural separation of Facebook’s internal functions might be a more powerful solution.</p>
<p>One thing is clear, fixing Facebook will take coordinated international regulation. At the core of this discussion of course is corporate power in the age of <a href="https://theconversation.com/deletefacebook-is-still-feeding-the-beast-but-there-are-ways-to-overcome-surveillance-capitalism-93874">surveillance capitalism</a>. Facebook’s repeated failures mean that legislative and regulatory action has reportedly now even turned to the question of <a href="https://www.theguardian.com/technology/2019/mar/13/facebook-data-sharing-investigation">criminal investigation</a>. We’re some way yet from effective action but it looks increasingly like governments, legislators and regulators will not accept the status quo. Where Facebook has users, governments will regulate.</p><img src="https://counter.theconversation.com/content/124120/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leighton Andrews does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Mark Zuckerberg’s recent meetings with US lawmakers suggests his company is worried about the growing number of investigations, regulations and fines it faces.Leighton Andrews, Professor of Public Service Leadership, Cardiff UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1014622018-08-21T13:44:25Z2018-08-21T13:44:25ZInquiry sets out how parts of the private health care sector in South Africa can be fixed<figure><img src="https://images.theconversation.com/files/232462/original/file-20180817-165943-p5tvvc.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>A <a href="http://www.compcom.co.za/healthcare-inquiry">Health Market Inquiry</a> into South Africa’s private health care sector has established that the market is dominated by a few players. In such an environment, non-competitive behaviour such as collusion and excessive pricing tends to <a href="https://theconversation.com/why-the-dominance-of-big-players-is-bad-for-south-africas-economy-92058">thrive</a>. These dominant firms withhold key information which leaves consumers disempowered and at the mercy of monopolistic enterprises.</p>
<p>South Africa’s medical schemes market reflects acute domination by a few players. A few examples illustrate this. Among a total of 22 medical schemes open to the public, one scheme, Discovery Health Medical Scheme, is home to 55% of all medical scheme beneficiaries. Among the administrators contracted by medical schemes to manage and administer medical insurance, two companies – Discovery Health and Medscheme – account for 76% of total gross contribution income. And as much as 83% of private hospital beds are owned by the three large hospital groups: Netcare, Mediclinic and Life.</p>
<p>On top of this a handful of big corporations have controlling stakes in the few players that dominate the private health care industry, with some individuals serving as directors on the boards of multiple companies. </p>
<p>The report argues that the lack of competitive pressure feeds high prices for medical goods and services. The situation is made worse by information asymmetry – customers know much less than the companies offering the services – which makes for uninformed consumers. </p>
<h2>Closing the gap</h2>
<p>The report makes recommendations to close this information gap under five broad themes:</p>
<p>Standard benefit packages: Medical schemes should be required to offer a similar standard benefit package. This will allow those purchasing medical insurance to make better informed choices based on value-for-money.
This should cover prescribed minimum benefits as well as cost-effective out-of-hospital care and primary and preventive health care.</p>
<p>In this way, consumers can easily compare the prices of the basic option offered by different schemes and make decisions based on value-for-money. The coverage offered under this package will be exempt from co-payments to medical schemes or additional billing by providers. </p>
<p>Reimbursement and pay for performance: Doctors and specialists are currently paid for every individual service provided to the patient on a reimbursement basis, called fee-for-service payment. This often results in overuse and over-prescription, known as supply-induced demand. The problem of supply-induced demand is worsened by the fact that the prices of medical services are unregulated.</p>
<p>This needs to change and alternative ways to reimburse doctors and specialists needs to be found that links the service they offer to how they perform. </p>
<p>Medical brokers: The position and role of brokers in the South African medical aid industry has been <a href="https://theconversation.com/why-south-africa-needs-to-discipline-the-private-healthcare-industry-100410">precarious</a>. For one, its not clear whose side they’re on as they are often paid by and working for only one specific scheme which dilutes their objectivity.</p>
<p>And the fact that the majority of consumers are allocated a broker by default, through a practice called opt out, is highly problematic.</p>
<p>The report recommends that the opt out practice should be changed to one that allows people to opt in. Scheme members will be able to exercise their choice of making use of the services of a medical broker – or not – on an annual basis. </p>
<p>Clients without brokers will pay proportionally lower scheme membership fees. They will also be able to directly engage with medical schemes rather than through brokers, including applying for membership.</p>
<p>Disclosure of information: The report recommends that customers must be given far more information than is currently the case. This should include, for example, details on the costs of particular care. And, as a matter of course, service providers should declare their interests in facilities being used. For example, a service provider should provide the patient with information on their shareholding in the facility where the service is being provided. They must also declare their financial interest in any product they use, dispense or prescribe.</p>
<p>Another recommendation is that all fee-for-service tariffs should be published and displayed at each place where patients make contact with the health care system. This includes the consulting rooms of doctors and specialists as well as hospital reception areas. Other information of interest and value to the clients of private medical schemes should also be put in the public domain. This could include information on the results and value of adopting alternative methods to pay health care providers.</p>
<p>Information on administrative costs and income from broker fees should also be published by the Council for Medical Schemes on an annual basis.</p>
<p>Voice and participation: The report calls for consumer activism. This includes attendance by scheme members of their insurer’s Annual General Meeting. </p>
<p>The report also calls for activism by civil society organisations. These can make representations to the proposed forum responsible for setting fee-for-service tariffs.</p>
<h2>The long road ahead</h2>
<p>A number of factors will determine how fast, and how far, change takes place.</p>
<p>Certainly, the legislative changes needed to make it possible for the inquiry’s recommendations to be implemented will take time. And the success of many of the initiatives will ultimately depend on buy-in from medical schemes, scheme administrators, and medical practitioners. </p>
<p>Equally critical will be the capacity to effectively manage and to hold accountable new institutions – such as a Supply-Side Regulator – as proposed in the report.</p><img src="https://counter.theconversation.com/content/101462/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Frederik Booysen does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Findings from South Africa’s Health Market Inquiry makes recommendations to close the information gap between service providers and consumers.Frederik Booysen, Professor of Economics: School of Economic and Business Sciences Frederik Booysen, University of the WitwatersrandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1004102018-07-25T14:45:55Z2018-07-25T14:45:55ZWhy South Africa needs to discipline the private healthcare industry<figure><img src="https://images.theconversation.com/files/229060/original/file-20180724-194143-1lj4nb6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>If a service is provided by a company rather than government, this does not automatically mean a market is at work. The point is fairly obvious but has passed many in South Africa by.</p>
<p>Private provision of services is moving into the spotlight in South Africa as the government looks to make the health system more accessible to the poor. One aspect is the <a href="https://www.huffingtonpost.co.za/2018/07/06/5-things-you-need-to-know-about-the-healthcare-market-inquiry_a_23475961/">Health Market Inquiry</a>, established by the Competition Commission and chaired by former Chief Justice Sandile Ngcobo. It recently released a provisional report recommending more regulation of private health care. It has invited comment on its ideas.</p>
<p>It is absolutely inevitable that whatever proposals it comes up with will be <a href="https://bhekisisa.org/article/2016-01-20-motsoaledi-accused-of-seeking-justification-to-control-prices">attacked</a> as an assault on the free market in health care. This will ignore the reality – that there is no market in health care in South Africa, at least not one which works in the way in which markets are meant to work.</p>
<p>To get an obvious point out of the way first, markets work only for people who have enough money to take part. So it is true that a healthcare market in South Africa would exclude many people who cannot afford private care. But that is not the only problem with the private healthcare system – another is that even those who are able to join medical schemes do not get the benefits markets are meant to offer.</p>
<p>For markets to <a href="http://www.compcom.co.za/wp-content/uploads/2018/07/Health-Market-Inquiry-1.pdf">work</a> as they are meant to, consumers must be able to make informed choices: they must have both a real right to choose and enough information to make that choice. But information and choice operate weakly in private healthcare and not at all in the private health insurance offered by medical aids.</p>
<p>This places the South African debate about healthcare in perspective. The Competition Commission and the health ministry are not trying to abolish the market, they are trying to make it work. The accurate debate is about whether they are doing it in the best possible way.</p>
<h2>No real choice</h2>
<p>It might be true that people who can afford private medical care can choose their general practitioner. But that is where it ends. If patients need specialised care or hospital treatment, they don’t choose the specialist or the place where they will be treated. </p>
<p>And so they have no way of ensuring that they get the best possible care. While popular wisdom in the suburbs often assumes that all private doctors and hospitals are good, inevitably some are a great deal better than others and some are no good at all. But consumers do not make an informed choice on where to go and who to go to, although this is a far more important decision than buying a kettle.</p>
<p>Informed <a href="http://www.compcom.co.za/wp-content/uploads/2018/07/Health-Market-Inquiry-1.pdf">choice</a> of a medical aid scheme is just about non-existent. Most people belong to the scheme their employer chooses. If they are “lucky” enough to have a choice in theory, they do not have one in practice. Medical aids do not <a href="https://www.health24.com/News/sas-private-healthcare-not-competitive-20180705">publicise</a> what they do and the language they often use most people can’t understand and so there is no way to “shop around” in ways which would make an informed choice possible.</p>
<p>The situation is quite the same when people have joined schemes. Information on what is allowed and what is not may be understandable to doctors and pharmacists, but not to scheme members.</p>
<p>The supposed solution is the <a href="https://www.fin24.com/Companies/Health/calls-to-include-health-market-inquiry-findings-in-new-medical-aid-regulations-20180723">medical aid broker</a>, who is meant to help consumers to choose and to deal with the scheme after they join. But the brokers are paid by the schemes and so it is no surprise that they are there to look after the scheme, not the consumer.</p>
<p>Brokers direct people to the schemes they are working for, not those which will best meet the needs of the consumer. Anyone who has a problem with a medical aid’s decision will soon find that the broker is a public relations officer, not a consumer representative. Their job is to justify the scheme’s decision, not to question it.</p>
<h2>Pro -market moves</h2>
<p>Given all this, the Health Market Inquiry’s proposal that healthcare providers and funders should be regulated is a pro-market move – it seeks to make informed choice more of a factor than it is now. There is room for debate on whether it is going about it in the best way. But to claim that it is an <a href="https://bhekisisa.org/article/2016-01-20-motsoaledi-accused-of-seeking-justification-to-control-prices">attack on markets</a> ignores the way in which private healthcare operates.</p>
<p>Similarly, an amendment to <a href="https://businesstech.co.za/news/government/253207/these-are-the-10-massive-medical-aid-changes-you-need-to-know-about/">the Medical Aid Schemes Bill</a> which would abolish brokers is currently up for discussion. It, too, is not an attack on the market. Its likely effect would be to force brokers into the customer relations departments of the medical schemes, improving market information by ensuring that consumers know that they are dealing with people who work for the schemes, not for them. </p>
<p>Again, to oppose this measure is not to defend the market – it is the opposite. To argue against it is to say that a market in which people know who they are dealing with and can make informed choices is not a good idea.</p>
<p>The tendency to assume that private provision means that there is a market even when there is not is not restricted to health care. For years, it was assumed in the mainstream that the market was delivering satellite television when there was only <a href="https://mybroadband.co.za/news/broadcasting/226269-how-icasa-proposes-the-multichoice-dstv-monopoly-should-be-broken.html">one supplier</a>. Moving from services to goods, many beer drinkers no doubt toast the market as they choose between a range of labels produced by one company. </p>
<p>More generally, concentration in the formal economy means that most goods are produced by subsidiaries of a handful of companies – and sold in stores owned by only two or three firms. While competition between a couple of firms is technically a market, it is hardly one which offers strong benefits to consumers.</p>
<h2>Making markets work</h2>
<p>This has two implications for South Africa’s economic debate. The first is that not all proposals for regulating private economic activity are an attack on the market. A key feature of the country’s economy is that it is dominated by very few players and so markets often do not work as they should. A stronger government role could mean stronger, not weaker, markets.</p>
<p>The second is that, in these circumstances, the claim that markets must be left alone very often means that there is a need to leave existing private providers alone. This hides the reality that, in current circumstances, the challenge is not to protect private providers but to ensure that they really are subjected to the rules by which markets are meant to force them to play.</p><img src="https://counter.theconversation.com/content/100410/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Steven Friedman does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Debates around South Africa’s health market inquiry must remember that not all proposals for regulating private economic activity are an attack on the market.Steven Friedman, Professor of Political Studies, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1003212018-07-24T04:00:01Z2018-07-24T04:00:01ZTaking on big tech: where does Australia stand?<figure><img src="https://images.theconversation.com/files/228954/original/file-20180724-189316-v0bbv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">How will Australia rule when it comes to big tech?</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/information-technology-internet-digital-justice-law-736514560?src=nrtF6VpAZokXbyCg_dZnIA-1-31">shutterstock</a></span></figcaption></figure><p>Big tech is under fire in Europe. In its latest sting, the European Commission has slapped Google with an eye-watering <a href="https://www.bbc.com/news/technology-44858238">€4.3 billion (AU$6.8 billion) fine</a> for anti-competitive tying of its Android operating system to its in-house search engine and web browser.</p>
<p>The decision follows the Commission’s €2.4 billion (AU$3.5 billion) fine against the company for giving <a href="https://www.smh.com.au/business/google-hit-with-record-35-billion-fine-by-european-union-over-antitrust-case-20170627-gwzwmd.html">illegal advantage to its comparison shopping service</a>, just over a year ago. </p>
<p>And the search company is not alone in feeling the heat from Brussels. Apple, Amazon, Facebook and Microsoft have all been on the receiving end of what some see as a “<a href="https://techcrunch.com/2018/06/17/the-techlash/">techlash</a>” reflecting anti-US bias and protectionism. </p>
<p>So far, US competition authorities have taken a far more restrained approach. The Federal Trade Commission looked into various Google practices in 2012 and <a href="https://www.nytimes.com/2013/01/04/technology/google-agrees-to-changes-in-search-ending-us-antitrust-inquiry.html">found it had no case to raise around search bias</a>. Antitrust officials are instead encouraging vigilance but <a href="https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-keynote-address-university-chicagos">caution when it comes to intervening</a> in data-driven markets characterised by high rates of innovation.</p>
<p>Closer to home, the Australian Competition and Consumer Commission (ACCC) is conducting <a href="https://www.accc.gov.au/focus-areas/inquiries/digital-platforms-inquiry">an inquiry into the impact of digital platforms on media and advertising markets</a>. It is attracting intense interest, not just here but abroad. There are also reports of the ACCC separately <a href="https://www.theguardian.com/technology/2018/may/14/australian-regulator-investigates-google-data-harvesting-from-android-phones">investigating Google’s data-harvesting practices</a>. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-consumers-need-from-the-accc-inquiry-into-google-and-facebook-88560">What consumers need from the ACCC inquiry into Google and Facebook</a>
</strong>
</em>
</p>
<hr>
<h2>Will the ACCC follow the US or European approach?</h2>
<p>It is tempting to speculate about the outcomes of the inquiry in those terms, but to do so would be a mistake. </p>
<p>There are differences in the substantive laws across jurisdictions. The <a href="https://theconversation.com/explainer-what-is-the-competition-effects-test-39424">Australian rule on misuse of market power</a>, for example, is not an exact replica of either its US or EU counterpart.</p>
<p>What’s more, the law in any country can only be understood by considering its ideological roots, the political and socio-cultural conditions in which it is shaped, and the institutional framework that determines its application. In other words, history and context matter.</p>
<p>Divergence between the US and European Union on how to deal with large powerful companies is nothing new and, in context, not all that surprising.</p>
<h2>In the US competition is about consumer welfare</h2>
<p>US antitrust laws were introduced in response to the economic and political power of “big business” and what was seen as a need to protect the “little guy” from a few “<a href="https://www.businessinsider.com/robber-barons-who-built-and-ruled-america-2017-7/?r=AU&IR=T">robber barons</a>”. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/228955/original/file-20180724-189329-4y9a50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/228955/original/file-20180724-189329-4y9a50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=362&fit=crop&dpr=1 600w, https://images.theconversation.com/files/228955/original/file-20180724-189329-4y9a50.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=362&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/228955/original/file-20180724-189329-4y9a50.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=362&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/228955/original/file-20180724-189329-4y9a50.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=455&fit=crop&dpr=1 754w, https://images.theconversation.com/files/228955/original/file-20180724-189329-4y9a50.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=455&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/228955/original/file-20180724-189329-4y9a50.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=455&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">US antitrust laws were created to prevent big companies from dominating the market.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-vector/fat-man-cigar-sitting-on-bags-108276413?src=uBimf8h02rerPh6fwtIBqQ-1-26">Shutterstock</a></span>
</figcaption>
</figure>
<p>However, since the 1970s, under the influence of the <a href="https://www.amazon.com/Antitrust-Paradox-Robert-H-Bork/dp/0029044561">Chicago school</a>, commitment to economic efficiency in the interests of consumer welfare has become the singular goal of antitrust.</p>
<p>In practice, this has meant agencies and courts have stressed a ground rule of trusting markets to self-correct and erring on the side of false negatives rather than false positives. Where there is intervention, it is to protect competition and not competitors.</p>
<p>In recent times, there has been growing dissatisfaction in some circles about the levels of concentration in the US economy and the role that <a href="https://hbr.org/2017/12/the-rise-fall-and-rebirth-of-the-u-s-antitrust-movement">permissive</a> antitrust has played in creating so-called <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2927018">“data-opolies”</a>. </p>
<p>Nevertheless, Chicagoan themes continue to underpin self-restraint on the part of US antitrust agencies, including when it comes to big tech.</p>
<h2>In Europe fairness counts too</h2>
<p>While EU competition laws are also concerned about the consumer, they are more <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3191766">pluralistic</a> in their approach. This reflects their experience in the aftermath of the second world war, and the <a href="http://ec.europa.eu/growth/single-market_sl?2nd-language=es">single market project</a>. </p>
<p>EU-style antitrust has therefore always been based on – and continues to reflect – more normative values than the US, protecting ideas like economic freedom and fairness.</p>
<p>Fairness in this context, however, is not necessarily about protecting the losers from a legitimate competitive process. It is about protecting the right to equal opportunities for efficient competitors, or merit-based competition on a level playing field.</p>
<p>It is also about ensuring fairness for consumers. Anti-competitive conduct, the <a href="https://www.ted.com/talks/margrethe_vestager_the_new_age_of_corporate_monopolies/transcript?rss&utm_source=dlvr.it&utm_medium=facebook">European competition boss</a> argues, is unfair because it deprives consumers of the power to arbitrate the marketplace. </p>
<h2>Australian competition law has its own flavour</h2>
<p>Born in the late 1970s, the modern version of Australian competition law has followed the Chicagoan song sheet, favouring economic efficiency for consumer welfare as its primary purpose. </p>
<p>However, in a relatively small economy, marked by oligopolistic structures and high concentration in key sectors, Australia has always struggled with a balancing act between promoting efficiency and protecting small business.</p>
<p>“Fair competition” (a version of the iconic <a href="https://www.accc.gov.au/speech/retail-energy-a-fair-go-for-consumers">“fair go”</a>) is a phrase often heard in Australian competition law dialect. But it is not to be confused with propping up inefficient rivals at the expense of competition. </p>
<p>Unlike in many other countries, Australia’s competition rules live within a statute that also has rules to deal separately with <a href="https://theconversation.com/coles-v-accc-finding-the-balance-between-fair-trading-and-competition-33135">ensuring small businesses and consumers are treated fairly</a>.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australias-consumer-laws-still-dont-cover-e-books-and-many-other-digital-products-91831">Australia's consumer laws still don't cover e-books and many other digital products</a>
</strong>
</em>
</p>
<hr>
<p>Under the <a href="https://www.accc.gov.au/about-us/australian-competition-consumer-commission/legislation">Competition and Consumer Act</a>, the competition, fair trading and consumer protection provisions are mutually reinforcing. Also unlike in either the US or EU, these provisions are enforced by a single agency, the ACCC. </p>
<p>Distinctive too is that the ACCC is an agency with substantial regulatory responsibilities in areas including communications and infrastructure. These may be relevant in a debate about whether <a href="https://www.lawfareblog.com/should-leading-online-tech-companies-be-regulated-public-utilities">powerful tech companies should be regulated like public utilities</a> on the grounds that they provide services that are essential to consumers. </p>
<h2>The ACCC’s inquiry will be holistic</h2>
<p>Given this legislative and institutional framework, the ACCC’s take on big tech is likely to be a mix of US and EU approaches with more than a dash of homemade seasoning. </p>
<h3>Competition</h3>
<p>It will consider if platforms have market power, in which markets, and how such power is being exercised. Implications for the price, quality and choice of news for consumers will loom large.</p>
<p>It will consider what impact the proposed <a href="https://treasury.gov.au/consumer-data-right/">consumer right to data</a> may have. </p>
<h3>Consumer protection</h3>
<p>It will also examine whether platforms are providing users with adequate levels of privacy and data protection.</p>
<h3>Fair trading</h3>
<p>The ACCC will look into whether the large platforms are behaving in a way that dampens innovation and investment incentives for start ups and smaller players. </p>
<h3>Regulation</h3>
<p>There will be consideration of whether platforms have an unfair advantage because the regulatory playing field is not even. Regulation of journalistic content and copyright will also come into play.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/news-outlets-air-grievances-and-facebook-plays-the-underdog-in-accc-inquiry-95511">News outlets air grievances and Facebook plays the underdog in ACCC inquiry</a>
</strong>
</em>
</p>
<hr>
<p>Most importantly, the inquiry will not be static in its focus. It will have a firm eye on potential long term trends in and impacts of technological change within an Australian context. </p>
<p>Within a broad holistic framework, the ACCC will examine these questions in an integrated way. And will take its time to “<a href="https://www.accc.gov.au/speech/regulating-for-competition-stepping-up-for-platforms-stepping-back-from-media">get the answers right</a>”. </p>
<hr>
<p><em>A version of this article appears on <a href="https://pursuit.unimelb.edu.au/articles/taking-on-big-tech-where-does-australia-stand">Pursuit</a>. Professor Caron Beaton-Wells will launch a podcast on 26 July about <a href="https://competitionlore.com/">Competition Lore</a>, focusing on the challenges of competition in a digital age. Listen to ACCC Chairman Rod Sims discuss the Digital Platforms Inquiry in episode three of the podcast.</em></p><img src="https://counter.theconversation.com/content/100321/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Caron Beaton-Wells receives funding from the Australian Research Council.</span></em></p>The US and Europe approach tech regulation very differently due to their historical contexts. Where does Australia’s fit in?Caron Beaton-Wells, Professor, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/978552018-06-07T20:26:39Z2018-06-07T20:26:39ZCriminal charges against banking ‘cartels’ show Australia is getting tough on competition law<p>A two-year probe by Australia’s consumer watchdog has resulted in <a href="https://theconversation.com/cartel-case-shows-not-all-corporate-misbehaviour-goes-unpunished-82149">criminal charges</a> against ANZ, Citigroup and Deutsche Bank, as well as six of their senior executives, over alleged “cartel-like” behaviour.</p>
<p>The case, brought by the Commonwealth Director of Public Prosecutions (CDPP) after an investigation by the Australian Competition and Consumer Commission (ACCC), is the second prosecution of its kind to be brought in Australia since competition laws were tightened almost a decade ago.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cartel-case-shows-not-all-corporate-misbehaviour-goes-unpunished-82149">Cartel case shows not all corporate misbehaviour goes unpunished</a>
</strong>
</em>
</p>
<hr>
<p>The banks and six investment bankers are charged with cartel conduct related to the sale of A$2.5 billion worth of unsold ANZ shares to investors in August 2015. The ACCC <a href="https://www.accc.gov.au/media-release/criminal-cartel-charges-laid-against-anz-citigroup-and-deutsche-bank">alleges</a> that senior executives from the three banks colluded in the way they dealt with these shares. </p>
<p>The exact details of the alleged criminal conduct will only become clear at a Sydney court hearing on July 3, 2018. </p>
<h2>What is cartel behaviour?</h2>
<p>Cartels are forms of anti-competitive conduct where cartel participants decide to stop competing and start colluding. Australian civil law has banned cartels for decades. But the practice only became a <a href="https://www.legislation.gov.au/Details/C2009A000590">criminal offence in 2010</a>. Only its serious forms are subject to criminal law; civil law still governs the rest.</p>
<p>Cartels can take different forms. In the most common instance, participants collude by setting their prices. Other forms include: output restrictions; dividing markets among cartel participants on mutually agreed terms; and bid-rigging, in which a commercial contract is decided in advance but other operators put in sham bids to give the appearance of competition.</p>
<p>There is one primary reason why businesses or executives would stop competing and start colluding: profit. In short, cartel participants cheat to get more money, creating higher prices and lower output in the process. This disadvantages consumers, the economy and society at large. </p>
<p>But proving criminal collusion in a court is harder than it might seem.</p>
<h2>Beyond reasonable doubt</h2>
<p>Although we need to wait for the case to unfold to find out more, what we can tell at this stage is that the ACCC and the CDPP perceive the alleged conduct as serious enough for it to constitute a criminal case. Criminal cases are harder to prove than civil cases. Cartel collusion must be proved beyond reasonable doubt, and the evidence has to show that the individuals involved knew (or believed) that they were colluding. </p>
<p>What these charges also show is that the ACCC and the CDPP are prepared to go after the most powerful corporations and their executives for alleged cartel-like conduct. This is an enormously important step for deterrence, because criminal charges are naturally more attention-grabbing than civil lawsuits. </p>
<p>Charging high-ranking bank executives will potentially make the deterrent more effective still, because high-ranking executives set the cultural tone for their organisations.</p>
<p>Research has shown that significant prison time – or the threat of it – for individuals is a more effective deterrent than civil penalties; especially if the penalties are not high enough, as was argued in the <a href="http://www.oecd.org/competition/pecuniary-penalties-competition-law-infringements-australia-2018.htm">recent OECD report on corporate penalties for cartels in Australia</a>. The report showed that the penalties applied in Australia were low in comparison with competition law regimes in the European Union and the United States. </p>
<h2>Just the beginning?</h2>
<p>This is the second Australian criminal case of cartel conduct – the first involved a <a href="https://theconversation.com/cartel-case-shows-not-all-corporate-misbehaviour-goes-unpunished-82149">Japanese company shipping cars to Australia</a>. We can reasonably expect more of these kinds of charges in the future, given that the laws are only eight years old and investigations of this type typically take years to reach fruition. (The alleged cartel conduct in the latest case took place in August 2015, almost three years ago.)</p>
<p>There are differences in investigation procedures between criminal and civil cases, to ensure that collected pieces of evidence are admissible in a criminal proceeding. It is ultimately the CDPP’s (and not the ACCC’s) decision whether or not to prosecute. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/cartels-caught-ripping-off-consumers-should-be-hit-with-bigger-fines-78750">Cartels caught ripping off consumers should be hit with bigger fines</a>
</strong>
</em>
</p>
<hr>
<p>The final step is for criminal proceedings to be prosecuted. The first cartel criminal case, which concerned the shipping industry, can be perceived as successful, with two global shipping companies pleading guilty. </p>
<p>It is still early days for Australia in terms of tracking down and punishing examples of cartel behaviour via criminal prosecutions. But the latest developments suggest that Australia is prepared to follow the example of the world leader in successful cartel-related criminal prosecutions: the United States.</p>
<p>The US criminal regime is one of the oldest in the world, having existed since 1890. The US boom of cartel-related criminal cases began in the late 1990s with the lysine cartel and the vitamin cartel and with the first foreign national being sentenced to imprisonment in July 1999. One of the first criminal cartel investigations inspired the production of the 2009 movie <a href="https://www.imdb.com/title/tt1130080/">The Informant!</a>. </p>
<p>The numbers further illustrate the success of the US criminal prosecutions. For instance, <a href="https://www.justice.gov/atr/criminal-enforcement-fine-and-jail-charts">27 corporations and 82 individuals were charged in the fiscal year 2011</a>. Australia has a long way to go before it can match those numbers.</p><img src="https://counter.theconversation.com/content/97855/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Barbora Jedlickova has received two Ian Potter Foundation grants which are unrelated to this article.</span></em></p>The charges laid against ANZ and other banks over alleged cartel-like behaviour suggests that Australia is following the United States in cracking down on anti-competitive behaviour.Barbora Jedlickova, Lecturer, School of Law, The University of QueenslandLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/956222018-04-30T10:38:37Z2018-04-30T10:38:37ZTariffs are the wrong weapon in fight against China’s ‘pirates’ – here’s the right one<p>The Trump administration’s <a href="https://www.nytimes.com/2018/04/05/business/trump-trade-war-china.html">face-off against China</a> over intellectual property rights is a battle worth fighting. Unfortunately, the White House has chosen the wrong weapon: tariffs.</p>
<p>The administration launched the first salvo in March, slapping steep tariffs on steel and aluminum, and more recently announced <a href="https://www.washingtonpost.com/business/economy/trump-administration-targets-chinese-electronics-aerospace-and-machinery-goods-with-50-billion-in-tariffs/2018/04/03/9be42e5e-3786-11e8-9c0a-85d477d9a226_story.html">US$50 billion in new duties on a range of Chinese goods</a>. Such unilateral tariffs <a href="https://www.nytimes.com/2018/03/23/business/trump-world-trade-organization.html">almost certainly violate</a> the rules of the World Trade Organization. Furthermore, they risk <a href="https://www.washingtonpost.com/news/politics/wp/2018/04/04/chinas-retaliatory-tariffs-will-hit-trump-country-hard/?noredirect=on&utm_term=.f58dae37f310">sparking a trade war with China</a>, which would ultimately harm U.S. companies. </p>
<p>There is a better way to respond to Chinese intellectual property theft: unfair competition law. Use of unfair competition law to sanction overseas piracy is a relatively new tool. However, our <a href="https://scholar.google.com/citations?user=kqgSxeYAAAAJ&hl=en&oi=ao">research</a> <a href="https://works.bepress.com/sean_pager/7/">has found</a> that it has already proven effective in holding scofflaws accountable. </p>
<h2>Targeting unfair behavior</h2>
<p>Trump’s tariffs may be just a ploy to spur negotiations. Yet persuading China to respect intellectual property rights requires sustained pressure and commitment. Trade sanctions are too blunt an instrument for this task. </p>
<p>Unfair competition law, on the other hand, functions more like a scalpel. It targets specific companies that use stolen intellectual property in their manufacturing process. Since using stolen intellectual property as an input saves money, this confers an undeserved cost advantage versus law-abiding competitors – hence, such companies are competing unfairly. </p>
<p>Unfair competition laws exist at both the state and federal level and can be used by both private companies and public enforcers (typically state attorneys general) to target unfair behavior that harms competitors in the marketplace. Moreover, while the pain of a tariff is spread across a broad range of goods and companies, unfair competition suits target the actual wrongdoers: in this case, the Chinese companies that have <a href="http://www.nam.org/Newsroom/Press-Releases/2014/01/New-Study-by-Harvard-Business-School-Professor-and-Nam-Chief-Economist-Shows-International-Software-Piracy-Hampering-Manufacturers-in-the-U-S-/">unfairly benefited</a> from Western intellectual property. </p>
<p>As narrowly targeted remedies, such actions are far less likely to provoke retaliation, thus minimizing the risk that U.S. companies would suffer as well. At the same time, such suits offer remedies with real teeth: fines, punitive damages as well as exclusion orders blocking access to the U.S. market. Settlements often result in ongoing monitoring to ensure future compliance. </p>
<h2>A record of success</h2>
<p>Holding foreign manufacturers accountable for intellectual property theft overseas represents a novel use of unfair competition law. However, it has already amassed a proven track record. </p>
<p>The strategy began in 2009, with a case filed under federal trade law against TianRui, a Chinese manufacturer of steel railway wheels, alleging use of stolen trade secrets. Although the secrets were stolen in China, the U.S. International Trade Commission agreed that the action threatened to harm U.S. competitors in the domestic market and thus represented unfair competition – a <a href="http://tsi.brooklaw.edu/sites/tsi.brooklaw.edu/files/filings/tianrui-group-company-ltd-v-international-trade-commission/20111011federal-circuit-decision.pdf">decision upheld</a> on appeal.</p>
<p>Since then, <a href="https://works.bepress.com/sean_pager/7/">our research</a> has documented at least 17 enforcement actions against foreign companies – <a href="http://naag.org/publications/naagazette/volume-8-number-8/pirates-thieves-and-trolls.php">from seafood distributors to barbecue makers</a> – accused of stealing software or trade secrets from U.S. companies. Almost all resulted in favorable judgments or settlements. </p>
<p>For example, in 2013, the Washington state attorney general <a href="http://www.atg.wa.gov/news/news-releases/washington-s-new-unfair-competition-law-protects-local-company-software-piracy">threatened to sue Embraer</a>, the Brazilian manufacturer of regional jet aircraft, for unfair competition based on its use of unlicensed Microsoft software in its domestic factories. Although the software was not used on the aircraft that Embraer exported to the U.S. market, the cost savings realized from the stolen intellectual property were said to be substantial. Embraer reportedly paid $10 million to settle the case. </p>
<p>While suits have been brought against businesses in several countries, Chinese companies have been by far the biggest target, making up half of the cases. Several have had their goods blocked from the U.S. market for 10 years or more. A Chinese maker of barbecue equipment was fined $250,000 for failing to license its software. Moreover, the majority of the cases ended with the defendants entering commitments to license their intellectual property going forward, often subject to external monitoring.</p>
<h2>Intellectual property is just the start</h2>
<p>Beyond holding foreign companies liable for intellectual property theft, competition law could also be used more extensively as a remedy for many other types of misconduct.</p>
<p>The same underlying theory could be applied against labor abuses in foreign sweatshops or environmental harms and human rights violations if it can be shown that such practices give a company an unfair competitive advantage.</p>
<p>For example, using forced labor can significantly lower a textile factory’s costs to make shirts, making it harder for a U.S.-based competitor to compete. Similarly, illegally dumping toxic waste can yield unfair costs savings vis-a-vis more scrupulous rivals. </p>
<p>In theory, any illegal manufacturing practice that yields an unfair cost advantage – from the <a href="https://www.theguardian.com/world/2013/may/26/sumatra-borneo-deforestation-tigers-palm-oil">rainforest devastation</a> inflicted by Indonesian palm plantations to the illegal use of <a href="http://www.foodispower.org/slavery-chocolate/">child labor</a> by African chocolate growers – could potentially give rise to an unfair competition claim. </p>
<p>So long as the cost savings can be shown to yield an unfair competitive edge when finished goods are sold in the U.S. market, they fall within the jurisdiction of U.S. unfair competition law, allowing lawsuits to be filed in American courts.</p>
<p>Punishing overseas cheating levels the global playing field for U.S. companies. At the same time, it could offer a measure of justice to those powerless to seek relief in their home country, thus protecting some of the world’s most vulnerable populations and environments.</p>
<h2>Leading the charge</h2>
<p>While the Trump administration has used intellectual property theft to justify its tariffs, the federal government has been conspicuously absent from the unfair competition bandwagon targeting such theft directly. </p>
<p>States filed half of the 18 lawsuits we counted, while private companies brought the rest. And the Federal Trade Commission has <a href="https://drive.google.com/file/d/1Wn8iOJL18kFdBXYkBkECPvEE9cYshBYa/view?usp=sharing">declined to get involved</a>, despite a <a href="https://www.perkinscoie.com/en/news-insights/39-state-attorneys-general-pledge-to-combat-piracy-an-unfair.html">petition from 39 states and territories</a>.</p>
<p>To be sure, unfair competition law is no panacea. Lawsuits cannot remedy every form of Chinese misconduct. Some of the practices that the U.S. government complains of are not technically illegal or might be difficult to prove resulted in competitive harms. To be effective, unfair competition actions should therefore be combined with other measures the Trump administration has outlined, including restricting Chinese investment in strategic industries and pursuing a WTO complaint. </p>
<p>Still, unfair competition’s potential has yet to be fully explored. Rather than risking a trade war over tariffs, the Trump administration should lead the battle to hold foreign scofflaws accountable directly using U.S. competition law.</p><img src="https://counter.theconversation.com/content/95622/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sean Pager serves on the Academic Advisory Board of the Copyright Alliance.</span></em></p><p class="fine-print"><em><span>Eric Priest is a member of the U.S.-China IP Cooperation Dialogue, organized by the U.S. Chamber of Commerce and Renmin University’s China Intellectual Property Academy. He also serves on the Academic Advisory Board of the Copyright Alliance.</span></em></p>Unfair competition law offers a more effective, targeted strategy to persuade China to play by the rules.Sean Pager, Professor of Law, Michigan State UniversityEric Priest, Associate Professor of Law, University of OregonLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/923652018-03-13T16:39:11Z2018-03-13T16:39:11ZSouth Africa’s economy is badly skewed to the big guys: how it can be changed<figure><img src="https://images.theconversation.com/files/209512/original/file-20180308-30972-1m5arf8.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Shutterstock</span> </figcaption></figure><p>The South African economy looks uncomfortably <a href="https://theconversation.com/why-the-dominance-of-big-players-is-bad-for-south-africas-economy-92058">the same</a> to the one inherited when the country transitioned from apartheid to democracy in 1994. Which is why it’s time for a robust economic policy agenda to make it more open, productive and inclusive.</p>
<p>A number of obstacles stand in the way. These include the continued bias towards activities with relatively low productivity, high levels of concentration in key sectors and a lack of diversity in ownership. </p>
<p>Competition policy is a critical part of efforts to change the structure of the economy. But addressing entrenched economic power requires a much wider package of measures.</p>
<p>International experience shows that countries develop by moving towards more diverse, higher value-added and more sophisticated products, a process referred to as structural transformation. There is still no sign that this is happening in South Africa.</p>
<p>In-fact, <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/597f6189a803bbd42418effe/1501520268712/CCRED+IDRP+Policy+Brief_Metals+Machinery++Equipment+Sector+310717.pdf">research</a> conducted by the Industrial Development Think Tank has found that South Africa regressed between 1994 and 2016. The economy has become less diverse and it’s failed to use existing capabilities to produce new products. </p>
<p>Take the country’s export basket. It continues to be dominated by minerals and resource based industries, which represent <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5a9e4ece652dea3162be0aa6/1520324306895/Policy+Brief+3.pdf">60%</a> of total merchandise exports. This is at the expense of increased competitiveness in industries which create more jobs such as plastic products which range from simple lunch boxes to complex automotive components. </p>
<p>The composition of the export basket also <a href="https://static1.squarespace.com/static/52246331e4b0a46e5f1b8ce5/t/5a9e4ece652dea3162be0aa6/1520324306895/Policy+Brief+3.pdf">compares poorly</a> to other upper middle-income countries. For example, in 2016 high-technology exports accounted for only 6% of South Africa’s manufacturing exports compared to Thailand’s 21% and Malaysia’s 43%.</p>
<p>If South Africa continues on this path, it will struggle to create employment at the scale that is required. The majority of its population will continue to be excluded and the social fabric will continue to unravel.</p>
<h2>Market concentration</h2>
<p>High levels of market concentration coupled with barriers to entry are a big part of the problem. South Africa needs to allow for economic rivalry. Its known that rivals bring new products and business models, and spur incumbents to invest in improving their own offerings.</p>
<p>A recent <a href="https://juta.co.za/media/filestore/2017/12/Draft_Competition_Amendment_Bill_2017.pdf">study</a> of merger reports by the Competition Commission found that there was unilateral dominance – where a single firm has a market share in excess of 45% – in a large number of markets. This included communication technologies, energy, financial services, food and agro-processing, infrastructure and construction, industrial input products mining, pharmaceuticals and transport.</p>
<p>These sectors cover most of the economy. They are central to economic growth and to consumers’ pockets. </p>
<p>And the situation seems to be getting worse. Statistics South Africa <a href="http://www.statssa.gov.za/publications/Report-30-02-03/Report-30-02-032014.pdf">data</a> show concentration levels in manufacturing has intensified: in 80 sub-sectors, the proportion in which the biggest five firms held over 70% of market share increased from 16 in 2008 to 22 in 2014.</p>
<h2>Concentration is bad</h2>
<p>Economic concentration opens the door to market power being exercised in a way that undermines productivity. This can be seen, for instance, in value chains where downstream players have to pay high prices for inputs, with dire consequences for their competitiveness. </p>
<p>The knock on effect is that economic growth slows down and employment creation is affected if downstream industries are labour absorbing.</p>
<p>Such skewed economic power also translates into political power where dominant companies use their resources to lobby for ‘rules of the game’ that favour them. Some examples include:</p>
<ul>
<li><p>Telkom, a partially state owned telecommunication company, has for a long time persuaded policymakers, in the name of extending access, to support its position in the <a href="http://www.engineeringnews.co.za/article/telkom-monopoly-a-threat-to-ict-development-2012-08-15">fixed-line monopoly</a>. </p></li>
<li><p>There’s been similar strong lobbying in <a href="https://mybroadband.co.za/news/broadcasting/240772-its-all-about-multichoice-protecting-its-dstv-monopoly-former-minister.html">pay TV</a> to secure rules that hinder potential rivals. </p></li>
<li><p>In beer distribution and retail, Anheuser-Busch InBev spent millions of dollars <a href="https://www.opensecrets.org/news/2015/10/anheuser-busch-inbevs-aquisition-of-sabmiller-would-brew-a-strong-lobbying-combination/">lobbying</a> against conditions that would have restricted its operations .</p></li>
</ul>
<p>The other area that has felt the effect of big player dictating the rules of the game has been in the <a href="https://theconversation.com/white-people-in-south-africa-still-hold-the-lions-share-of-all-forms-of-capital-75510">slow progress</a> when it comes to meaningful black economic empowerment. Economic transformation initiatives have tended to reinforce incumbents as gate keepers in exchange for minority shareholdings.</p>
<h2>Broader agenda needed</h2>
<p>A lack of progress towards increased participation is one of the justifications for <a href="http://www.polity.org.za/article/south-africa-releases-competition-amendment-bill-2017-12-05">amendments</a> to the country’s Competition Act. The Competition Amendment Bill is an important step in addressing concentration and increased participation. But it needs to be part of a broader competition policy agenda. </p>
<p>South Africa also needs to introduce a range of complementary policies. Three key areas in particular need to be addressed:</p>
<p><strong>Promote new entrants:</strong> Economic regulations must be changed to favour entrants and ensure incumbents can be effectively challenged. This includes regulations to allow access to essential infrastructure. For example, in telecommunications, spectrum must be allocated to foster greater rivalry. Measures can also include soft regulation such as codes of conduct for supermarket chains to promote access to markets by suppliers and small retailers.</p>
<p><strong>Enforcement:</strong> The country needs more effective enforcement against anticompetitive conduct that excludes smaller rivals. The Competition Amendment Bill goes some way to deal with this. It emphasises the competitive process and in important areas gives weight to the ability of smaller participants and black industrialists to enter markets and grow.</p>
<p><strong>Support rivals:</strong> This can be done by expanding development finance for entrants. Funds could be drawn from competition penalties. Development finance should also consider extending support across the different levels of the value chain. An example is the funding that the Industrial Development Corporation has given to new entrants in the agro-processing value chain from the fund created from the bread <a href="http://www.compcom.co.za/wp-content/uploads/2016/11/CC201602-Mandiriza-T-Sithebe-T-and-Viljoen-M-2016-The-impact-of-the-agro-processing-competitiveness-fund-in-facilitating-entry-into-selected-agro-processing-se.pdf">cartel fines.</a></p>
<p>Talk of economic transformation needs to be backed by a coherent economic strategy that moves the country away from a concentrated, exclusionary, low productivity economy into an open, fair economy for all.</p>
<p><em>Pamela Mondliwa, a researcher at the Centre for Competition, Regulation and Economic Development at UJ, coauthored this article.</em></p><img src="https://counter.theconversation.com/content/92365/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Simon Roberts has received research funding from SA Department of Trade and Industry, Competition Commission SA and National Treasury of SA. </span></em></p>South Africa needs a robust economic policy agenda to make it more open, productive and inclusive.Simon Roberts, Professor of Economics and Director of the Centre for Competition, Regulation and Economic Development, University of JohannesburgLicensed as Creative Commons – attribution, no derivatives.