tag:theconversation.com,2011:/us/topics/australian-competition-and-consumer-commission-8488/articlesAustralian competition and Consumer Commission – The Conversation2024-02-25T19:05:30Ztag:theconversation.com,2011:article/2232992024-02-25T19:05:30Z2024-02-25T19:05:30ZSo, you’ve been scammed by a deepfake. What can you do?<figure><img src="https://images.theconversation.com/files/576658/original/file-20240220-24-qi0t3y.jpg?ixlib=rb-1.1.0&rect=92%2C115%2C3731%2C2283&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/deep-fake-ai-face-swap-video-2376208005">Tero Vesalainen/Shutterstock</a></span></figcaption></figure><p>Earlier this month, a Hong Kong company <a href="https://www.theguardian.com/world/2024/feb/05/hong-kong-company-deepfake-video-conference-call-scam">lost HK$200 million (A$40 million)</a> in a <a href="https://www.esafety.gov.au/industry/tech-trends-and-challenges/deepfakes">deepfake</a> scam. An employee transferred funds following a video conference call with scammers who looked and sounded like senior company officials.</p>
<p>Generative AI tools can create image, video and voice replicas of real people saying and doing things they never would have done. And these tools are becoming increasingly easy to access and use.</p>
<p>This can perpetuate <a href="https://theconversation.com/taylor-swift-deepfakes-new-technologies-have-long-been-weaponised-against-women-the-solution-involves-us-all-222268">intimate image abuse</a> (including things like “revenge porn”) and disrupt <a href="https://www.unswlawjournal.unsw.edu.au/article/disinformation-deepfakes-and-democracies-the-need-for-legislative-reform">democratic processes</a>. Currently, many jurisdictions are grappling with how to <a href="https://pursuit.unimelb.edu.au/articles/picture-to-burn-the-law-probably-won-t-protect-taylor-or-other-women-from-deepfakes">regulate AI deepfakes</a>.</p>
<p>But if you’ve been a victim of a deepfake scam, can you obtain compensation or redress for your losses? The legislation hasn’t caught up yet.</p>
<h2>Who is responsible?</h2>
<p>In most cases of deepfake fraud, scammers will avoid trying to fool banks and security systems, instead opting for so-called “push payment” frauds where victims are tricked into directing their bank to pay the fraudster.</p>
<p>So, if you’re seeking a remedy, there are at least four possible targets:</p>
<ol>
<li><p>the fraudster (who will often have disappeared) </p></li>
<li><p>the social media platform that hosted the fake</p></li>
<li><p>any bank that paid out the money on the instructions of the victim of the fraud </p></li>
<li><p>the provider of the AI tool that created the fake.</p></li>
</ol>
<p>The quick answer is that once the fraudster vanishes, it is currently unclear whether you have a right to a remedy from any of these other parties (though that may change in the future). </p>
<p>Let’s see why.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/voice-deepfakes-are-calling-heres-what-they-are-and-how-to-avoid-getting-scammed-201449">Voice deepfakes are calling – here's what they are and how to avoid getting scammed</a>
</strong>
</em>
</p>
<hr>
<h2>The social media platform</h2>
<p>In principle, you could seek damages from a social media platform if it hosted a deepfake used to defraud you. But there are hurdles to overcome.</p>
<p>Platforms typically frame themselves as mere conduits of content – which means they are not legally responsible for the content. In the United States, platforms are explicitly <a href="https://www.law.cornell.edu/uscode/text/47/230">shielded from this kind of liability</a>. However, no such protection exists in most other common law countries, including Australia. </p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/this-is-why-australia-may-be-powerless-to-force-tech-giants-to-regulate-harmful-content-169826">This is why Australia may be powerless to force tech giants to regulate harmful content</a>
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<p>The Australian Competition and Consumer Commission (ACCC) <a href="https://www.theguardian.com/technology/2022/mar/18/accc-takes-meta-to-court-over-facebook-scam-ads-depicting-australian-identities">is taking Meta</a> (Facebook’s parent company) to court. They are testing the possibility of making digital platforms directly liable for deepfake crypto scams if they actively target the ads to possible victims.</p>
<p>The ACCC is also arguing Meta should be liable as an accessory to the scam – for failing to remove the misleading ads promptly once notified of the problem.</p>
<p>At the very least, platforms should be responsible for promptly removing deepfake content used for fraudulent purposes. They may already claim to be doing this, but it might soon become a legal obligation. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/the-accc-is-suing-meta-for-celebrity-crypto-scam-ads-on-facebook-heres-why-the-tech-giant-could-be-found-liable-179655">The ACCC is suing Meta for celebrity crypto scam ads on Facebook. Here's why the tech giant could be found liable</a>
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</em>
</p>
<hr>
<h2>The bank</h2>
<p>In Australia, the legal obligations of whether a bank has to reimburse you in the case of a deepfake scam aren’t settled.</p>
<p>This was recently considered <a href="https://www.supremecourt.uk/cases/uksc-2022-0075.html">by the United Kingdom’s Supreme Court</a>, in a case likely to be influential in Australia. It suggests banks don’t have a duty to refuse a customer’s payment instructions where the recipient is suspected to be a (deepfake) fraudster, even if they have a general duty to act promptly once the scam is discovered. </p>
<p>That said, the UK is introducing a <a href="https://www.psr.org.uk/news-and-updates/latest-news/news/psr-continues-to-take-bold-action-on-app-fraud-as-it-publishes-final-reimbursement-details-ahead-of-2024-implementation/">mandatory scheme</a> that requires banks to reimburse victims of <a href="https://www.latrobe.edu.au/news/articles/2023/opinion/making-banks-pay-for-scam-losses">push payment fraud</a>, at least in certain circumstances. </p>
<p>In Australia, the <a href="https://www.theguardian.com/money/2023/feb/01/australian-banks-should-reimburse-scam-victims-accc-and-consumer-advocates-say">ACCC</a> and others have presented proposals for a similar scheme, though none exists at this stage. </p>
<figure class="align-center ">
<img alt="Customers stand outside Australian bank ATMs" src="https://images.theconversation.com/files/576676/original/file-20240220-22-6n09mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/576676/original/file-20240220-22-6n09mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/576676/original/file-20240220-22-6n09mj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/576676/original/file-20240220-22-6n09mj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/576676/original/file-20240220-22-6n09mj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/576676/original/file-20240220-22-6n09mj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/576676/original/file-20240220-22-6n09mj.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">Australian banks are unlikely to be liable for customer losses due to scams, but new schemes could force them to reimburse victims.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/melbourne-australia-july-2-2017-unidentified-676982497">TK Kurikawa/Shutterstock</a></span>
</figcaption>
</figure>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australia-can-learn-from-the-uks-experience-by-making-banks-pay-for-scam-losses-209585">Australia can learn from the UK's experience by making banks pay for scam losses</a>
</strong>
</em>
</p>
<hr>
<h2>The AI tool provider</h2>
<p>The providers of generative AI tools are currently not legally obliged to make their tools unusable for fraud or deception. In law, there is no duty of care to the world at large to prevent someone else’s fraud.</p>
<p>However, providers of generative AI do have an opportunity to use technology to reduce the likelihood of deepfakes. Like banks and social media platforms, they may soon be required to do this, at least in some jurisdictions. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/who-will-write-the-rules-for-ai-how-nations-are-racing-to-regulate-artificial-intelligence-216900">Who will write the rules for AI? How nations are racing to regulate artificial intelligence</a>
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<hr>
<p>The recently proposed <a href="https://ec.europa.eu/commission/presscorner/detail/en/ip_23_6473">EU AI Act</a> obligates the providers of generative AI tools to design these tools in a way that allows the synthetic/fake content to be detected. </p>
<p>Currently, it’s proposed this could work through <a href="https://www.theverge.com/2024/2/13/24067991/watermark-generative-ai-deepfake-copyright">digital watermarking</a>, although its effectiveness is still being <a href="https://venturebeat.com/ai/invisible-ai-watermarks-wont-stop-bad-actors-but-they-are-a-really-big-deal-for-good-ones/">debated</a>. Other measures include prompt limits, digital ID to verify a person’s identity, and further education about the signs of deepfakes.</p>
<h2>Can we stop deepfake fraud altogether?</h2>
<p>None of these legal or technical guardrails are likely to be entirely effective in stemming the tide of deepfake fraud, scams or deception – especially as generative AI technology keeps advancing.</p>
<p>However, the response doesn’t need to be perfect: slowing down AI generated fakes and frauds can still reduce harm. We also need to pressure platforms, banks and tech providers to stay on top of the risks. </p>
<p>So while you might never be able to completely prevent yourself from being the victim of a deepfake scam, with all these new legal and technical developments, you might soon be able to seek compensation if things go wrong. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/tmFFd8fMqxk?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">With audio, video and image deepfakes only growing more realistic, we need multi-layered strategies of prevention, education and compensation.</span></figcaption>
</figure>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australians-are-concerned-about-ai-is-the-federal-government-doing-enough-to-mitigate-risks-221300">Australians are concerned about AI. Is the federal government doing enough to mitigate risks?</a>
</strong>
</em>
</p>
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<img src="https://counter.theconversation.com/content/223299/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jeannie Marie Paterson receives funding from the Australian Research Council and the Department of Foreign Affairs and Trade.</span></em></p>Deepfake scams are on the rise – but can their victims claim compensation? The legal landscape is still developing.Jeannie Marie Paterson, Professor of Law, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2121162023-08-29T20:12:58Z2023-08-29T20:12:58ZFlying under the radar: Australia’s silent and growing competition crisis<figure><img src="https://images.theconversation.com/files/545227/original/file-20230829-19-1azvqg.png?ixlib=rb-1.1.0&rect=742%2C167%2C2952%2C1628&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>Australia has long had far less competition in consumer markets than the US.</p>
<p>New research from the <a href="https://e61.in/">e61 Institute</a> finds that in all but one of 17 broad industry divisions identified by the Australian Bureau of Statistics, Australian industries are on average more concentrated than their counterparts in the United States.</p>
<p>The measure used is “CR4” – the market share of the top four firms. </p>
<p>In 2017, the most recent year for which we could obtain comparable figures, Australia was far more prone to high levels of market concentration, with the top four firms accounting for 80% of some markets and averaging more than 60% across some industry categories.</p>
<hr>
<p><strong>Average concentration across industry groups, Australia versus United States</strong></p>
<p><em>Market share of the top four firms, per cent</em></p>
<hr>
<p>Importantly, we find market concentration in Australia increasing over time.</p>
<p>Between 2006 and 2020 Australia’s average CR4 measure of concentration increased 3 percentage points, with notable increases in industries that initially had a moderate level of concentration, such as retail and transport.</p>
<h2>Concentrated industries don’t welcome new entrants</h2>
<p>To be sure, concentrated does not always mean that competition is lacking, especially if there is credible threat of being displaced by dynamic upstarts. </p>
<p>But we found that in highly concentrated industries the four largest firms rarely got dislodged from their top positions over the 14 years between 2007 and 2021.</p>
<p>And those industries that experienced a rise in concentration over the seven years to 2014 recorded a decline in new firm entry over the following seven years.</p>
<p>This might mean we have as many as 6,300 fewer employing firms than we would have, giving Australian workers fewer employment options and suppressing real wage growth. And given that young firms are more innovative, it might mean lower productivity growth. </p>
<h2>Concentrated industries break rules more often</h2>
<p>Ranking Australian industries by their average concentration, we found the most concentrated had the most infringement notices and enforceable undertakings issued by the Australian Competition and Consumer Commission.</p>
<p>The airline industry, which is famously concentrated, has been hit with 12 such notices and enforceable undertakings over the past 30 years compared to only four for the accommodation industry.</p>
<hr>
<p><strong>ACCC infringement notices and undertakings versus industry concentration</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=475&fit=crop&dpr=1 600w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=475&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=475&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=597&fit=crop&dpr=1 754w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=597&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/545045/original/file-20230828-205898-q9bf2t.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=597&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Infringement notices and enforceable undertakings per 1,000 firms 1993-2023. Industry concentration is defined as the average sales concentration of the top 10 firms over 2007-2021.</span>
<span class="attribution"><a class="source" href="https://e61.in/">ABC, ACCC, e61</a></span>
</figcaption>
</figure>
<hr>
<h2>Concentration means higher prices</h2>
<p>To explore the impact of market concentration on prices, we examined margins between retail and wholesale petrol prices in Brisbane and the Gold Coast and their relationship to the number of competing petrol stations within three kilometres.</p>
<p>We found that where petrol stations faced less competition they tended to charge higher margins, and that when wholesale prices rose, they appeared to be quicker in passing on this cost to consumers to maintain margins.</p>
<hr>
<p><strong>Competitors within 3 kilometres versus average petrol margins</strong></p>
<hr>
<h2>Concentration is happening more quietly</h2>
<p>Whereas in the US large mergers have to be reported to regulators, in Australia mergers are more like marriages.</p>
<p>Just as you don’t have to tell your family you are getting married, you don’t have to notify the Australian Competition and Consumer Commission you are about to merge with a competitor.</p>
<p>Companies are <a href="https://www.accc.gov.au/system/files/Merger%20guidelines%20-%20Final.PDF">encouraged</a> to notify the ACCC if the merged parties make either substitutes or complements <em>and</em> the merged firm will have a market share of more than 20%, but that is a <em>guideline</em> rather than a requirement, and the guidance was <a href="https://www.unswlawjournal.unsw.edu.au/wp-content/uploads/2017/09/32-1-4.pdf">relaxed</a> in 2008.</p>
<p>If you are high-profile enough to be listed on the Australian Securities Exchange, the ACCC is going to find out anyway through the media (ASX companies have to disclose significant acquisitions), so in practice most companies planning large mergers ask for the ACCC’s blessing ahead of time to avoid embarrassment.</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>
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<p>That means while voluntary notification works well enough for bringing royal-wedding-style mergers to the ACCC’s attention, Vegas-style elopements can go undetected.</p>
<p>Although these small transactions can seem innocuous, their collective impact can be significant. In the US, it is estimated transactions too small to be reported account for <a href="https://www.nber.org/system/files/working_papers/w29655/w29655.pdf">28–47%</a> of the increase in concentration between 2022 and 2016. </p>
<p>In Australia, there is a risk that many of these transactions are going undetected.</p>
<p>e61 has found the number of private mergers (not reported to public financial markets) reviewed by the ACCC has <a href="https://e61.in/">plummeted</a> since the ACCC relaxed the reporting guidelines, from 55 in 2006 to just 12 in 2022</p>
<hr>
<p><strong>Number of private mergers reviewed by the ACCC per year</strong></p>
<hr>
<p>The head of the Competition and Consumer Commission Gina Cass-Gottlieb told the National Press Club this year she wanted Australia to move away from voluntary notifications to <a href="https://www.accc.gov.au/about-us/media/speeches/the-role-of-the-accc-and-competition-in-a-transitioning-economy-address-to-the-national-press-club-2023">formal clearances</a> of the kind required overseas where there was</p>
<ul>
<li><p>a mandatory requirement to notify the ACCC of mergers above specified thresholds </p></li>
<li><p>a requirement for transactions to be suspended from completion prior to ACCC clearance</p></li>
</ul>
<p>Parties proposing a non-contentious merger could apply for a notification waiver that, if granted, would mean they wouldn’t need to make a full formal application and the proposal could be dealt with quickly.</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>
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<p>Cass-Gottlieb said businesses were increasingly pushing the boundaries of the informal system, giving the ACCC late, incomplete, or incorrect information, and threatening to complete their transactions before it completed its reviews.</p>
<p>At times overseas authorities knew about proposed transactions involving Australian companies before the Australian authorities.</p>
<p>Our research finds that not only are Australian industries concentrated and becoming more so, but mergers might be increasingly flying under the radar.</p>
<p>The government has announced a review of competition policy that will include a <a href="https://ministers.treasury.gov.au/ministers/jim-chalmers-2022/media-releases/more-dynamic-and-competitive-economy">review of merger laws</a> as well as <a href="https://theconversation.com/1-in-5-australian-workers-have-non-compete-clauses-new-survey-207987">non-compete clauses</a>. Our research suggests there’s a strong economic case for taking action on both fronts.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/1-in-5-australian-workers-have-non-compete-clauses-new-survey-207987">1 in 5 Australian workers have non-compete clauses: new survey</a>
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<img src="https://counter.theconversation.com/content/212116/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dan Andrews is affiliated with the e61 Institute. </span></em></p><p class="fine-print"><em><span>Elyse Dwyer is affiliated with the e61 Institute</span></em></p>New research finds Australian industries are becoming concentrated with greater power to charge high prices. Unlike US firms, Australian firms are not required to report merger plans to authorities.Dan Andrews, Visiting Fellow and Director – Micro heterogeneity and Macroeconomic Performance program, Crawford School of Public Policy, Australian National UniversityElyse Dwyer, Researcher, Department of Economics, Macquarie UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2073192023-08-02T19:59:39Z2023-08-02T19:59:39ZBid-rigging is rife in Australian construction, but the process itself is partly to blame<figure><img src="https://images.theconversation.com/files/540638/original/file-20230802-15-z4z9qi.png?ixlib=rb-1.1.0&rect=323%2C760%2C3502%2C1640&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>Earlier this year the Federal Court found ARM Architecture and its then managing director <a href="https://www.vic.gov.au/learn-my-mistake-do-not-engage-cartel-conduct">Tony Allen</a> were guilty of attempting to <a href="https://www.accc.gov.au/media-release/arm-architecture-and-its-former-md-to-pay-penalties-for-attempted-rigging-of-university-tender">rig bids</a> for a tender relating to a $250 million building project at Charles Darwin University.</p>
<p>The Court ordered ARM Architecture to pay a penalty of $900,000 and Mr Allen to pay $75,000.</p>
<p>In a <a href="https://www.vic.gov.au/learn-my-mistake-do-not-engage-cartel-conduct">public statement</a>, Mr Allen said he had made</p>
<blockquote>
<p>a very serious mistake by attempting to induce the other firms to engage in bid-rigging, and this has had serious consequences for me. I have lost my position, my reputation, and my involvement in a profession that I love.</p>
</blockquote>
<p>Allen had sent <a href="https://www.judgments.fedcourt.gov.au/judgments/Judgments/fca/single/2023/2023fca0351">an email</a> to at least eight other architecture firms that were members of the Australian Institute of Architects Victorian Branch Large Practice Forum prior to the close of bids:</p>
<blockquote>
<p>Our request to you is simple. Please do not submit a tender as we are relying very heavily on continuing with this project to keep our practice alive throughout the remainder of this strange and difficult COVID time.</p>
</blockquote>
<p>He had followed it up with this second email: </p>
<blockquote>
<p>We have received very positive responses from Architectus and JWA. We would greatly appreciate a short note from you to let us know of your intentions either way.`</p>
</blockquote>
<h2>The biggest fine for architects so far</h2>
<p>Although colluding in bidding for contracts is rife in the construction industry and materials supply industries, this is the biggest fine so far for an individual professional services firm.</p>
<p>In Australia, the Australian Competition and Consumer Commission managed to successfully prosecute <a href="https://www.accc.gov.au/media-release/full-federal-court-orders-206million-penalties-against-cement-australia-companies">Cement Australia Pty Ltd</a> in 2017 for anti-competitive practices resulting in a fine of $20.6 million. </p>
<p>And in the United Kingdom, so many construction firms were involved in massive bid-rigging scandals uncovered in <a href="https://www.independent.co.uk/news/business/news/builders-fined-pound-129m-for-rigging-contract-bids-1791268.html">2008</a> and <a href="https://www.gov.uk/government/news/construction-firms-fined-nearly-60-million-for-breaking-competition-law-by-bid-rigging">2020</a>, that the UK government had to warn its agencies not to blacklist them because it would “limit choice”.</p>
<h2>Fees used to be fixed</h2>
<p>In the supposedly more genteel design professions, submitting tenders for fees is relatively new. Until about 40 years ago, architects and engineers normally worked on a fixed-fee basis, and often made deals to divide work between them. </p>
<p>The Royal Institute of British Architects, founded in 1834, was set up primarily as a <a href="https://www.investopedia.com/terms/c/cartel.asp">cartel</a> to maintain a schedule of fees and prescribe educational standards for those who wanted to use the term “architect”. </p>
<p>Although fixed fees are likely to upset economists on principle, they have the advantage of not encouraging architects to shortcut their professional responsibilities in order to compete on price.</p>
<p>This might be why the law allows medical professionals, lawyers and pharmacists to set fees for their services. Few people would be tempted to select their surgeon on the basis of price.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-universities-may-come-to-regret-the-costs-of-city-deals-and-private-sector-solutions-166670">Why universities may come to regret the costs of City Deals and private sector 'solutions'</a>
</strong>
</em>
</p>
<hr>
<p>Until about 1980, the Royal Australian Institute of Architects also attempted to fix fees. When the government gently pointed out that this was illegal under trade practices law, the Institute began a long, slow retreat and eventually stopped publishing a recommended fee scale, much to the chagrin of many members.</p>
<p>Competitive tendering is typically seen as the “gold standard” for getting value in construction, but tendering processes have become so onerous and convoluted that the costs of tendering in relation to the potential gains may now be reducing rather than enhancing competition. </p>
<p>This is especially significant for design consultants such as architects and engineers whose profitability is typically well below average for the industry.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/540641/original/file-20230802-10044-ku6rqb.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/540641/original/file-20230802-10044-ku6rqb.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=965&fit=crop&dpr=1 600w, https://images.theconversation.com/files/540641/original/file-20230802-10044-ku6rqb.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=965&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/540641/original/file-20230802-10044-ku6rqb.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=965&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/540641/original/file-20230802-10044-ku6rqb.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1212&fit=crop&dpr=1 754w, https://images.theconversation.com/files/540641/original/file-20230802-10044-ku6rqb.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1212&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/540641/original/file-20230802-10044-ku6rqb.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1212&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The original Charles Darwin University design.</span>
<span class="attribution"><span class="source">ARM Architecture</span></span>
</figcaption>
</figure>
<h2>Bidding processes convoluted</h2>
<p>The Charles Darwin University project is a case in point. ARM was selected to design what was to be an “<a href="https://www.infrastructure.gov.au/sites/default/files/migrated/cities/city-deals/darwin/files/darwin-city-deal.pdf">iconic</a>” building, but documentation of the design was to be the subject of a second tender, which was the subject of ARM’s emails.</p>
<p>This two-stage process, devised by a project management firm, was self-defeating. </p>
<p>Charles Darwin University wanted a highly-awarded architect to deliver an iconic building, but much of the design ARM contributed has been lost. </p>
<p>The images of the new building, produced by another firm, do not resemble the original ARM design and are not the stuff architectural icons are made of.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/540691/original/file-20230802-21-ctgz3u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/540691/original/file-20230802-21-ctgz3u.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=339&fit=crop&dpr=1 600w, https://images.theconversation.com/files/540691/original/file-20230802-21-ctgz3u.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=339&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/540691/original/file-20230802-21-ctgz3u.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=339&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/540691/original/file-20230802-21-ctgz3u.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=426&fit=crop&dpr=1 754w, https://images.theconversation.com/files/540691/original/file-20230802-21-ctgz3u.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=426&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/540691/original/file-20230802-21-ctgz3u.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=426&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The updated Charles Darwin University design.</span>
<span class="attribution"><span class="source">CDU</span></span>
</figcaption>
</figure>
<p>ARM and Tony Allen have paid a very high price for their folly in asking other firms not to tender, but the project management firm that devised the expensive and ultimately unproductive double tender process has not been subject to any public scrutiny or criticism.</p>
<p>If we are going to have fee tenders, we need a transparent system with enforceable rules sufficient to stop public clients needlessly adding costs by wasteful convolutions, as happened with the Charles Darwin University double tender.</p>
<h2>Maybe there’s a better way</h2>
<p>Alternatives should to be considered. It ought to be possible for the client to nominate a reasonable fee, and then select consultants who will accept the nominated fee based purely on their merit. </p>
<p>Another possibility is a two-envelope system, where the fee and the quality of submission are assessed separately, with the fee envelope only opened when an evaluation of the quality of submissions has taken place. </p>
<p>Other than that, we could do worse than revert to a fixed percentage fee and reap a huge saving in the effort, time and money put into selection processes. Free-market economists might like to think about how much competitive tenders actually cost.</p><img src="https://counter.theconversation.com/content/207319/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Geoff Hanmer's firm ARINA was involved in the second stage of the bidding for the CDU project with Richard Kirk Architect. ARINA had no role in the selection of ARM for the project nor in the subsequent selection process other than as a participant in the second competition with Richard Kirk. </span></em></p>There’s no excuse for colluding not to complete on fees, but the time-consuming and complicated bidding process for design work encourages it.Geoff Hanmer, Adjunct professor of architecture, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/2002652023-02-21T04:55:05Z2023-02-21T04:55:05ZSee when Australia’s biggest banks stopped paying proper interest on your savings – and what you can do about it<figure><img src="https://images.theconversation.com/files/511334/original/file-20230221-24-soramb.png?ixlib=rb-1.1.0&rect=0%2C785%2C3389%2C1435&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>Whenever interest rates went up in the past, I used to get told it wasn’t all bad news. At least it was good for some people: savers – people with money in the bank.</p>
<p>I hear a lot less of that these days.</p>
<p>If you’ve got money in the bank, you’re now lucky to earn anything at all. One in seven of the deposit dollars held by the Commonwealth bank (Australia’s biggest for deposits) is in a “transaction account” on which it <a href="https://images.theconversation.com/files/511239/original/file-20230220-18-uyzffw.PNG">no longer pays interest</a>. </p>
<p>Where interest is paid, it is so tiny compared to what it was that Treasurer Jim Chalmers this month directed the Australian Competition and Consumer Commission to conduct an <a href="https://www.accc.gov.au/media-release/accc-launches-inquiry-into-deposit-interest-rates">inquiry</a>, using its compulsory information-gathering powers.</p>
<p>The last time the commission conducted such an inquiry, into <a href="https://www.accc.gov.au/publications/residential-mortgage-price-inquiry-final-report">mortgage rates</a> in 2018, it gained access to nearly 40,000 documents from the big four banks and more than 7,000 from the smaller banks.</p>
<h2>Bad news for savers: when your rates began to fall</h2>
<p>What the commission is likely to find is that whereas transaction accounts stopped paying interest some time ago, so-called online accounts offering interest on large deposits were paying very reasonable interest – up until five years ago.</p>
<p>How do I know that’s the likely finding? Here’s what I found, when I graphed the Reserve Bank’s measure of the average online rate for a $10,000 deposit against the Reserve Bank’s cash rate, going back to 2010.</p>
<hr>
<p><iframe id="4oHRI" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/4oHRI/1/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
<hr>
<p>What the graph shows is that, until about five years ago, the online rate for big deposits moved in line with the cash rate and (as it happened) almost exactly matched it. When the cash rate was 3%, the online deposit rate was 3%, and so on.</p>
<p>But from 2018, the deposit rate fell away. Except for the time when both rates were close to zero during the early years of COVID, the rate paid on large deposits has stayed well below the cash rate ever since.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1218&fit=crop&dpr=1 754w, https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1218&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/511276/original/file-20230221-14-vdhjax.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">Australian Banking Association chief Anna Bligh.</span>
<span class="attribution"><span class="source">Lukas Coch/AAP</span></span>
</figcaption>
</figure>
<p>That’s what the official figures say. But Anna Bligh, chief executive of the Australian Banking Association, sees them differently.</p>
<p>“This time last year, the four major banks, nobody, no bank was offering more than 0.3% on their savings account,” she told the <a href="https://www.afr.com/companies/financial-services/a-role-for-the-regulator-chalmers-warns-banks-to-lift-saving-rates-20230208-p5cirn">Australian Financial Review</a> this month. “Right now, they’re all offering at least 4% or more. So that’s a massive increase.”</p>
<p>But the rates Bligh quotes aren’t the standard ones. </p>
<p>The Commonwealth Bank is indeed paying 4% on its so-called NetBank Saver account, but the 4% is an introductory rate for new customers only – before slipping back to <a href="https://www.commbank.com.au/banking/netbank-saver.html">1.6%</a> after five months.</p>
<p>The web comparison site Canstar finds the average big bank introductory rate on $10,000 is <a href="https://images.theconversation.com/files/511271/original/file-20230221-28-xlcwh9.PNG">3.66%</a>, up from 0.24% before the Reserve Bank put up the cash rate by a total of 3.25 points.</p>
<p>But the average rate offered when the introductory bonus wears off has climbed by much less, from 0.05% to just <a href="https://images.theconversation.com/files/511271/original/file-20230221-28-xlcwh9.PNG">1.16%</a>.</p>
<h2>Complexity and suspected collusion makes switching hard</h2>
<p>And some of the high-looking rates have special conditions. </p>
<p>The Commonwealth’s GoalSaver account also offers 4%, but only if you put in more money in each month. If you can’t, or if you make a withdrawal, the rate plummets to <a href="https://www.commbank.com.au/banking/goal-saver.html">0.25%</a>.</p>
<p>The Australian Competition and Consumer Commission’s inquiry is likely to find that the complex nature of the deals makes switching hard, just as does the complex nature of electricity and health insurance deals.</p>
<p>That’s what it found about the bank’s <a href="https://www.accc.gov.au/publications/residential-mortgage-price-inquiry-final-report">mortgage offerings</a> in 2018.</p>
<p>It found the “opaque” nature of the offers inflated the costs of shopping around (including time and effort) and was one of the reasons why 70% of borrowers surveyed by one of the big banks said they signed up after getting just one quote.</p>
<p>It said the big four banks profited from the suppression of incentives to shop around and lacked strong incentives to make prices more transparent.</p>
<p>So why have the deposit rates offered by the big four banks dropped away?</p>
<p>When it came to mortgages, the ACCC suspected tacit collusion. Its 2018 report referred to a “synchronised” approach to rates seven times.</p>
<h2>Why the banks won’t act – unless we make them</h2>
<p>In very recent years, the banks have had less reason to offer high rates.
During the first 15 months of COVID, the Reserve Bank made available A$188 billion of funding to banks at the extraordinarily low rates of <a href="https://www.rba.gov.au/publications/bulletin/2021/sep/an-assessment-of-the-term-funding-facility.html">0.25% and 0.1%</a>.</p>
<p>This meant banks had less need to attract deposits, and in any event, they were overwhelmed with deposits. Elevated savings rates during COVID pushed an extra <a href="https://www.abs.gov.au/statistics/economy/national-accounts/australian-national-accounts-finance-and-wealth/sep-2022/5232034.xlsx">$300 billion</a> through their doors, as worried and locked-down households sought out safe places to stash cash.</p>
<p>Both of these things are changing. The last of the Reserve Bank’s cheap three-year loans to banks expires mid-next year, and households are stashing less into banks than they used to.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-do-bankers-behave-badly-they-make-too-much-to-ask-questions-146685">Why do bankers behave badly? They make too much to ask questions</a>
</strong>
</em>
</p>
<hr>
<p>It is possible deposit rates might be about to improve, all the more so because the banks will be under scrutiny until the ACCC inquiry reports at the end of the year.</p>
<p>When announcing the inquiry, the treasurer invoked fairness. Chalmers called on the banks to “pass on the interest rate rises to savers as quickly as you pass on the interest rate rises to mortgage holders”. </p>
<p>But fairness has little to do with it. The banks will pay depositors more only when they need to, or when they are pressured to. Until then, for many of us, deposits will earn next to nothing, regardless of where the Reserve Bank moves rates.</p>
<p>So if you’ve got a savings account, why not call up your bank, quote this article – and ask them what they’re going to do about it.</p><img src="https://counter.theconversation.com/content/200265/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin 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>I graphed the average online rate for a $10,000 deposit against the Reserve Bank’s cash rate, going back to 2010. After seeing what that graph reveals, you’ll want to call your bank.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1872792022-07-21T05:21:24Z2022-07-21T05:21:24ZANZ’s takeover of Suncorp will reduce bank competition – but will that be enough to block it?<p>Australia has one of the world’s most concentrated banking sectors, with its four biggest banks – Commonwealth Bank, National Australia Bank, Westpac and ANZ – holding more than about three-quarters of the market.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/four-pillars-or-four-pillows-bankings-comfy-collective-23297">Four pillars or four pillows? Banking's comfy collective</a>
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</em>
</p>
<hr>
<p>It will become even more concentrated if ANZ – the “minnow” of the big four – completes its plan to buy the banking division of Queensland-based <a href="https://www.suncorp.com.au/">Suncorp</a> for A$4.9 billion. </p>
<p>Suncorp, which also has a large insurance division, is the second largest of Australia’s four major regional banks. It is a significant brand in Queensland, and known to the rest of Australia through the name of Brisbane’s rugby stadium.</p>
<p>This will be the largest consolidation in Australian banking since 2008, when Commonwealth Bank took over Perth-based Bankwest and Westpac acquired Sydney-based St George Bank. It will push ANZ from fourth to third place by loan value. </p>
<p>First though, it needs two regulatory approvals – from the <a href="https://www.accc.gov.au/">Australian Competition and Consumer Commission</a>, which can block any merger that “substantially lessens” competition in any market; and the federal treasurer, who has <a href="https://www.legislation.gov.au/Details/C2020C00315">specific powers</a> over the financial sector.</p>
<p>Approval is by no means guaranteed. </p>
<p>ANZ’s chief executive Shayne Elliott has argued the deal will “<a href="https://www.suncorpgroup.com.au/announcements-pdf/1684676">improve competition</a>”. But that’s probably true only for ANZ. </p>
<p>Every smaller competitor, and consumers, have good grounds to argue the competition watchdog, or federal treasurer Jim Chalmers, should be vetoing the deal.</p>
<h2>This isn’t 2008</h2>
<p>When the competition watchdog and then federal treasurer Wayne Swan approved the acquisitions of Bankwest and St George in 2008, it was feared the alternative was these banks collapsing in the wake of the global financial crisis.</p>
<p>Bankwest’s owner, the Bank of Scotland, was in dire financial straits (and in 2009 would itself be taken over, by Lloyds Bank). </p>
<p>St George was in trouble, having had to <a href="https://www.afr.com/politics/westpac-swoops-on-st-george-20080513-jkgo1">raise its interest rates</a> more than its rivals because it had borrowed so much money to expand its loans business. </p>
<h2>ANZ’s competition argument</h2>
<p>Suncorp is under no such existential threat. The ANZ chief executive’s argument about why the merger <a href="https://www.suncorpgroup.com.au/announcements-pdf/1684676">is good for competition</a> has instead been based overwhelmingly on what it means to ANZ:</p>
<blockquote>
<p>As the smallest of the major banks, we believe a stronger ANZ will be able to compete more effectively in Queensland offering better outcomes for customers.</p>
</blockquote>
<p>He told the Australian Financial Review: “Just as Suncorp probably feels dwarfed by ANZ, we feel dwarfed by CBA.”</p>
<hr>
<p><iframe id="ooFSZ" class="tc-infographic-datawrapper" src="https://datawrapper.dwcdn.net/ooFSZ/6/" height="400px" width="100%" style="border: none" frameborder="0"></iframe></p>
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<p>Absorbing Suncorp’s $45 billion of deposits and $58 billion in commercial and home loans to its books will push up ANZ’s <a href="https://www.apra.gov.au/monthly-authorised-deposit-taking-institution-statistics">share of the home-lending market</a> to about 15.4%, compared with Commonwealth Bank’s 25.9%, Westpac’s 21.5% and NAB’s 14.9%. </p>
<p>But for everyone else, including consumers, other banks and regulators, the deal will likely hinder competition. </p>
<h2>Concentration and competition</h2>
<p>High market concentration does not necessarily mean competition is weak or that community outcomes will be poor, as the Productivity Commission concluded following its <a href="https://www.pc.gov.au/inquiries/completed/financial-system/report">2018 inquiry</a> into the state of competition in Australian financial services. </p>
<blockquote>
<p>Rather, it is the way market participants gain, maintain and use their market power that may lead to poor consumer outcomes. </p>
</blockquote>
<p>However, the Productivity Commission also concluded Australia’s major banks had charged prices above competitive levels, offered inferior quality products, and had acted to inhibit the expansion of smaller competitors. </p>
<blockquote>
<p>All are indicators of the use of market power to the detriment of consumers. </p>
</blockquote>
<p>Bucketloads more evidence has come from the <a href="https://theconversation.com/banking-royal-commissions-damning-report-things-are-so-bad-that-new-laws-might-not-help-104058">banking royal commission</a>, which found evidence that all four big banks (and many other financial services companies) had committed illegal or unethical acts to maximise profits at their customers’ expense.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-are-we-teaching-in-business-schools-the-royal-commissions-challenge-to-amoral-theory-110901">What are we teaching in business schools? The royal commission's challenge to amoral theory</a>
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</em>
</p>
<hr>
<h2>Tackling the ‘cosy olipoly’</h2>
<p>Following the publication of the royal commission’s final report in February 2019, the Australian Competition and Consumer Commission’s head, Rod Sims, <a href="https://aacs.org.au/rod-sims-australia-needs-a-law-against-unfair-behaviour-by-companies/">said</a></p>
<blockquote>
<p>A cosy banking oligopoly is surely at the heart of recent problems, so we must and will find ways to get more effective competition in banking.</p>
</blockquote>
<p>This mission is a work in progress. Some hopeful experiments, such as the “neobanks” (pure digital banks) are failing. Australia’s first neobank, Volt, which was granted its license to operate as a authorised deposit-taking institution in 2019, <a href="https://www.reuters.com/business/finance/australias-first-neobank-volt-shut-deposit-taking-business-return-licence-2022-06-29/">collapsed last month</a>. The second neobank, Xinja, quit the banking business back December 2020. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/its-unanimous-economists-poll-says-we-can-fix-the-banks-but-that-doesnt-mean-we-will-111748">It's unanimous: Economists' poll says we can fix the banks. But that doesn't mean we will</a>
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</em>
</p>
<hr>
<p>Given this, it’s hard to argue that further concentration is good for competition. </p>
<p>For the competition watchdog to block the deal, however, it must be convinced of a “<a href="https://www.accc.gov.au/system/files/Merger%20guidelines%20-%20Final.PDF">substantial</a>” lessening of competition. That means ANZ gaining market power to “significantly and sustainably” increase its prices or profit margins.</p>
<p>By my reading this deal will certainly lessen competition – but it’s uncertain if it will do so according to the “substantial” test. </p>
<p>Either way, this will prove a major test for the new chair of the Competition and Consumer Commission <a href="https://theconversation.com/allan-fels-as-accc-chair-gina-cass-gottlieb-will-put-the-public-interest-first-despite-years-of-fighting-for-business-173736">Gina Cass-Gottlieb</a> and new treasurer Jim Chalmers.</p><img src="https://counter.theconversation.com/content/187279/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Angel Zhong 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>There are good grounds to argue the competition watchdog, or federal treasurer Jim Chalmers, should be vetoing the deal.Angel Zhong, Associate Professor of Finance, RMIT 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>
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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>
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<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>
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<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>
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<span class="caption">Liza Carver, named enforcement commissioner.</span>
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<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>
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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>
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<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>
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<span class="caption">Rod Sims, ACCC chair since August 2011.</span>
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<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>
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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>
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<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>
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<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/1598092021-06-06T20:03:10Z2021-06-06T20:03:10ZNew finding: in 49 Australian industries the major firms are owned by common investors<figure><img src="https://images.theconversation.com/files/404439/original/file-20210604-17-1a56s7z.jpg?ixlib=rb-1.1.0&rect=1483%2C276%2C1979%2C1290&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Novikov Aleksey/Shutterstock</span></span></figcaption></figure><p>In more than a fifth of Australia’s industries, the two biggest firms control at least <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/1467-8462.12185">half the market</a>. </p>
<p>Think of telecommunications, supermarkets, department stores, packaging, airlines, hardware, service stations, cinema chains and commercial television.</p>
<p>In industries like these there’s a temptation to share the spoils — not to compete too hard on price or service.</p>
<p>How much stronger would that temptation be if both dominant firms in each industry were owned by the same shareholder or set of shareholders?</p>
<p>Neither firm might want to put the other out of business.</p>
<p>There’s evidence to suggest this has indeed been the case in the United States where increases in common ownership have been linked to higher <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12698">airline</a> fares, more expensive <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3285161">pharmaceuticals</a>, and higher <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2710252">bank fees</a>. </p>
<p>It’s enough to make you wonder whether there’s common ownership in Australia. </p>
<h2>Competitors share owners</h2>
<p>To find out, Andrew Leigh and I collected data from <a href="https://my.ibisworld.com/">IBISWorld</a> on the firms that compete with each other across Australia’s 443 industries. </p>
<p>We then matched that data to shareholding disclosures for each of the firms listed on the share market and analysed the extent to which competitors were owned by the same investors.</p>
<p>Our findings, just published in <a href="https://onlinelibrary.wiley.com/doi/10.1111/1475-4932.12610">Economic Record</a>, are troubling. </p>
<p>They identify common ownership in 49 of Australia’s 443 industries. </p>
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Read more:
<a href="https://theconversation.com/should-monopoly-businesses-have-an-obligation-to-create-competition-63202">Should monopoly businesses have an obligation to create competition?</a>
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<p>They are significant industries. The 49 together account for more than one third of Australia’s total industry revenue. </p>
<p>They include commercial banking, explosives manufacturing, fuel retailing, general insurance and iron ore mining. </p>
<p>In firms in those industries in which we can identify at least one owner, 31% share a substantial owner with a rival. </p>
<h2>Concentration is bigger than it looks</h2>
<p>Market concentration is traditionally measured by the <a href="https://www.investopedia.com/terms/h/hhi.asp">Herfindahl-Hirschman Index</a> (HHI) on a scale in which an HHI of less than 1,500 is considered to be competitive, an HHI of 1,500 to 2,500 is considered to be a moderately concentrated, and an HHI of 2,500 or more to be a highly concentrated.</p>
<p>When we modified the HHI to take account of common ownership, the scores of some industries jumped.</p>
<p>The index for banking jumped from 1,534 to 5,850; the index for funds management services jumped from 1,254 to 3,014. The index for department stores jumped from 3,061 to 4,888.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=266&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=266&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=266&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=334&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=334&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404442/original/file-20210604-15-1jf7thl.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=334&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><a class="source" href="https://onlinelibrary.wiley.com/doi/epdf/10.1111/1475-4932.12610">Common Ownership of Competing Firms: Evidence from Australia</a></span>
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<p>All up, effective market concentration was 20% higher than had been thought. </p>
<p>This is a problem because concentrated markets have been linked to a decline in the <a href="https://academic.oup.com/qje/article/135/2/645/5721266">labour share of income</a>, <a href="https://www.nber.org/papers/w22750">low productivity growth</a> and <a href="https://www.nber.org/papers/w22897">low investment</a>, as well as <a href="https://onlinelibrary.wiley.com/doi/abs/10.1111/jofi.12698">high prices</a>, <a href="https://www.nber.org/papers/w24768">markups</a> and <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3301054">rising inequality</a> — all challenges Australia is facing. </p>
<p>Who are these common owners? They are overwhelmingly institutional investors, predominantly <a href="https://www.blackrock.com/au">BlackRock</a> and <a href="https://www.vanguard.com.au/personal/home/en">Vanguard</a>. </p>
<p>This is unsurprising given one of either BlackRock, Vanguard or State Street is the largest shareholder in <a href="https://hbr.org/2019/02/how-big-a-problem-is-it-that-a-few-shareholders-own-stock-in-so-many-competing-companies">88%</a> of S&P500 companies in the United States. </p>
<h2>BlackRock, Vanguard and State Street</h2>
<p>But do they influence corporate decisions? The literature suggests they do.</p>
<p>Documenting the channels through which common owners affect competition, Nathan Shekita identifies <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3658726">30</a> cases of common owner intervention across industries including pharmaceuticals, oil and gas, banking and ride-sharing. </p>
<p>In 2019 BlackRock engaged 2,050 times with 1,458 companies in 42 markets.</p>
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<a href="https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1217&fit=crop&dpr=1 754w, https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1217&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/404448/original/file-20210604-23-18w7qlz.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1217&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Multinational investment corporation BlackRock.</span>
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<p>Martin Schmalz provides a <a href="https://ericposner.com/martin-schmalz-how-passive-funds-prevent-competition/">case study</a> of how this can occur. </p>
<p>An activist hedge fund campaigned in 2015 to have DuPont take a more aggressive approach to winning market share from its competitor, Monsanto.</p>
<p>The campaign was opposed by institutional investors including BlackRock and Vanguard. Upon the news that the activist campaign against DuPont had been defeated, Monsanto’s shares rose 3.5%. </p>
<p>Schmalz believes it’s possible that these institutional investors voted to maximise the value of their entire portfolio, which included significant stakes in DuPont’s competitor.</p>
<p>Our own study has plenty of limitations. We can only see Australian firms that are listed on the securities exchange, we can only observe shareholdings that exceed 5%, we can only see the largest competitors.</p>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/is-australias-media-market-one-of-the-worlds-most-concentrated-68437">Is Australia’s media market one of the world's most concentrated?</a>
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<p>These data limitations mean we might have understated common ownership.</p>
<p>Our findings ought to be enough to get policymakers and regulators looking more deeply into common ownership and monitoring its changes.</p>
<p>Only if we “follow money” can we get a true account of what that money does.</p><img src="https://counter.theconversation.com/content/159809/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adman Triggs conducted his study with Andrew Leigh, a former professor of economics at the Australian National University who is now a Labor member of parliament.</span></em></p>Shared ownership means Australian industries are far more concentrated than traditional metrics suggest.Adam Triggs, Visiting research fellow, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1557482021-02-22T23:23:36Z2021-02-22T23:23:36ZOne of these things is not like the others: why Facebook is beyond our control<figure><img src="https://images.theconversation.com/files/385683/original/file-20210222-17-10di7e5.jpg?ixlib=rb-1.1.0&rect=0%2C502%2C1680%2C1039&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><a class="source" href="https://www.pexels.com/@pixabay">Pixabay/Pexels</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>What’s the difference between Google and Facebook?</p>
<p>One difference is that last week Google <a href="https://www.theguardian.com/media/2021/feb/17/news-corp-agrees-deal-with-google-over-payments-for-journalism">agreed</a> to pay Australian news outlets for their content in the face of a threat of government action to force it to. </p>
<p>Facebook <a href="https://apnews.com/article/facebook-blocks-australia-news-access-fed95e78e8bf30f167eb1a2d893ac89c">did not</a>, temporarily removing Australian news sources from its feeds, a decision it only <a href="https://www.facebook.com/journalismproject/news-australia-decision">reversed</a> after winning a <a href="https://joshfrydenberg.com.au/latest-news/additional-amendments-to-news-media-and-digital-platforms-mandatory-bargaining-code/">range of concessions</a>.</p>
<p>Another is the reason why.</p>
<p>It’s that Google faces competition, whereas Facebook really doesn’t.</p>
<p>In economists’ language, that’s because Facebook enjoys a rare “<a href="https://www.economicshelp.org/blog/glossary/network-effects/">network effect</a>”, Google scarcely at all.</p>
<p>If I want to switch from Google to another search engine (<a href="https://duckduckgo.com/">something I’ve done</a>) it costs me next to nothing. I might find it hard to move my search history over (although there’s probably an app for that) but otherwise the new search engine will either be better, worse or about the same as the one I left. I’m free to find out.</p>
<h2>Google faces competition</h2>
<p>It means that Google is forced to defend itself from competition (or the threat of competition) by providing an extraordinarily good service.</p>
<p>Not so Facebook. Although a relatively new concept in economics, the idea of a network effect dates back to at least 1908 when the president of the American Telephone and Telegraph Company, <a href="https://beatriceco.com/bti/porticus/bell/pdf/1908ATTar_Complete.pdf">Theodore Vail</a>, spelled it out in a letter to stockholders.</p>
<p>“A telephone, without a connection at the other end of the line, is not even a toy or a scientific instrument,” he wrote. “It is one of the most useless things in the world. Its value depends on the connection with the other telephone — and increases with the number of connections.”</p>
<h2>Facebook faces hardly any</h2>
<p>The idea has since been expressed in a <a href="https://www.thegeniusworks.com/2020/02/metcalfes-law-explains-how-the-value-of-networks-grow-exponentially-there-are-5-types-of-network-effects/">mathematical formula</a>, but there’s no need to get into details. The world’s first telephone was indeed useless, the second allowed one household to reach only one other. But by the time there were millions, and almost every household had one, each telephone became incredibly valuable, allowing that household to reach almost every other household.</p>
<p>A startup that tried to compete with the phone system would be offering a very unappealing product. It wouldn’t be able to offer anything like the connections of the existing system until a huge proportion of the population signed up, meaning people would be reluctant to sign up, meaning it would stay unappealing.</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>Which is the point Vail was making. When it gets big enough, the telephone service is something close to a natural monopoly. There’s no point in anyone setting up a competing one (and in Australia we haven’t — the competing companies, Telstra, Optus and so on, share the one network).</p>
<p>The <a href="https://www2.asx.com.au/">ASX stock exchange</a> is another example, as is eBay. You could try to sell something on a different platform, but you wouldn’t reach nearly as many potential customers, so you mightn’t get as good a price.</p>
<p>The Australian Competition and Consumer Commission puts it <a href="https://www.accc.gov.au/publications/digital-platforms-inquiry-final-report">this way</a> in its report on Facebook: even if the government made it easier for a user to switch to another network, perhaps by mandating the transfer of data,</p>
<blockquote>
<p>if none of the user’s friends or family are moving away from Facebook, that user would be unlikely to switch platforms</p>
</blockquote>
<p>The “lock in” that happens when a network gets so big people feel they have to use it means it doesn’t have to treat them particularly well to get them to stay. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=970&fit=crop&dpr=1 600w, https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=970&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=970&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1219&fit=crop&dpr=1 754w, https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1219&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/385688/original/file-20210222-17-1wo5ueb.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1219&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Without Facebook, it’s hard to know what family and friends are up to.</span>
<span class="attribution"><span class="source">Gil C/Shutterstock</span></span>
</figcaption>
</figure>
<p><a href="https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report.pdf">Seventeen million</a> Australians use Facebook every four weeks — a huge proportion of the population, and an even bigger proportion of the population aged over 14 (<a href="https://www.afr.com/companies/media-and-marketing/australian-news-is-a-commodity-facebook-can-afford-to-lose-20210218-p573nt">80%</a>).</p>
<p>Without Facebook, it would be hard to know what family and friends and long-lost classmates are up to — whether or not Facebook offers news. It doesn’t need to treat its users particularly well to get them to stay.</p>
<p>Facebook isn’t quite like the phone system. Young people find the fact that so many old people can use it to check up on them a turn-off and go elsewhere. But for the Australians already on it (that’s most Australians) it’s worth staying.</p>
<p>And there’s room for smaller specialised networks. </p>
<p><a href="https://au.linkedin.com/">Linkedin</a> has its own network for people concerned about the jobs market. If that’s the world you’re in, it’s wise to be on it because of the huge number of other such people who are on it. There’s not much point leaving it for something else. </p>
<h2>Winner take all</h2>
<p>It wasn’t always that way for Facebook. Fifteen years ago <a href="https://en.wikipedia.org/wiki/Myspace">MySpace</a> was how people connected, but not that many of them — it hadn’t grown to the point where network effects took over. When they did, there could be only one clear winner, and it happened to be Facebook.</p>
<p>Now not even its bad behaviour (Roy Morgan finds it is Australia’s <a href="https://www.afr.com/rear-window/australians-don-t-trust-rio-tinto-or-westpac-20210204-p56zoj">least-trusted</a> brand) can stop most people using it.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=600&fit=crop&dpr=1 600w, https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=600&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=600&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=754&fit=crop&dpr=1 754w, https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=754&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/385692/original/file-20210222-15-ljdzt5.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=754&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Australia’s COVID campaign, off Facebook.</span>
</figcaption>
</figure>
<p>In the same way as people who want the lights on generally have to use the electricity company, people who want to catch trains generally have to use the railway and people who want to drive cars generally have to buy petrol, people who want to stay in touch generally have to use Facebook.</p>
<p>Which makes the government’s decision to remove its <a href="https://www.theaustralian.com.au/nation/vaccine-ads-pulled-from-facebook-as-government-opts-for-traditional-media/news-story/177b15e25206a1dc2005d185b5018769">vaccination advertising campaign</a> from Facebook silly. Facebook reaches 80% of its target audience.</p>
<p>Facebook has become a (trans-national) utility, unconcerned about its image. Attempts by one government, or even a <a href="https://theconversation.com/after-blocking-australian-news-facebooks-free-speech-myth-is-dead-and-regulators-should-take-notice-153119">coalition of governments</a>, to force it to do anything are pretty much a lost cause.</p>
<p>No-one wanted it to be like this, and it’s not like this for Google. Facebook has moved beyond our control.</p><img src="https://counter.theconversation.com/content/155748/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Martin 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>It enjoys huge network effects that lock users in. Google does not.Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1556282021-02-19T01:14:09Z2021-02-19T01:14:09ZFacebook versus Australia: the government hands Facebook a free pass<figure><img src="https://images.theconversation.com/files/385182/original/file-20210219-22-cgy73b.jpg?ixlib=rb-1.1.0&rect=381%2C234%2C2859%2C1473&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Kiichiro Sato/AP</span></span></figcaption></figure><p><a href="https://theconversation.com/au">The Conversation</a> is a great news site. But, for the most part, people don’t read it like a newspaper. Instead, articles on specialised topics are <a href="https://www.wikihow.com/Share-on-Facebook">shared</a> with other people. One way is via <a href="https://www.facebook.com/ConversationEDU">Facebook</a>. </p>
<p>Yesterday, almost none of that was possible worldwide for the Conversation’s Australian content because Facebook opted to <a href="https://about.fb.com/news/2021/02/changes-to-sharing-and-viewing-news-on-facebook-in-australia/">ban</a> all news (even <a href="https://www.facebook.com/bureauofmeteorology/posts/3902133459850525?comment_id=3902545609809310">seeming</a> news ) from Australian sources to avoid being designated for <a href="https://parlinfo.aph.gov.au/parlInfo/download/legislation/bills/r6652_third-reps/toc_pdf/20177b01.pdf">compulsory negotiations</a> under legislation before the Australian parliament.</p>
<p>The government’s new media bargaining code was a response to the Australian Competition and Consumer Commission’s <a href="https://www.accc.gov.au/focus-areas/inquiries-finalised/digital-platforms-inquiry-0/final-report-executive-summary">digital platforms inquiry</a> that found it was hard for content providers, including but not limited to news organisations – to deal with platforms whose rules were always changing. </p>
<p>Parts of these grievances are legitimate, and relate to editorial and algorithmic issues. Others relate to the platform’s stranglehold on online advertising.</p>
<p>But rather than tackle these issues head on, Australia’s government sliced out a sliver of the sites affected – news sites – and attempted to fix things for it, saying it’s <a href="https://joshfrydenberg.com.au/latest-news/media-code-will-level-the-digital-playing-field/">concerned about competition</a>.</p>
<h2>Competition policy without more competition</h2>
<p>To any economist, the point of competition policy is to encourage competition. In this case, either more digital platform options for consumers, or more news content options. </p>
<p>But the government’s <a href="https://parlinfo.aph.gov.au/parlInfo/download/legislation/ems/r6652_ems_2fe103c0-0f60-480b-b878-1c8e96cf51d2/upload_pdf/JC000725.pdf">legislation</a> seems to be uniquely designed to deliver neither.</p>
<p>The code allows news organisations to negotiate with large digital platforms about things such as how their algorithms work to prioritise content, and money. </p>
<p>And money is what it is really all about. The news organisations want more of it, large digital platforms have it. It’s that simple.</p>
<p>The code empowers news organisations to get money from digital platforms by</p>
<ul>
<li><p>making it unlawful for digital platforms that do not pay up to provide links to Australian news, giving big news outlets quasi-monopoly bargaining power</p></li>
<li><p>allowing deals to be made without the need for authorisation by a regulator concerned about the public interest</p></li>
<li><p>providing a regulatory stop-gap should that not happen, whose design is tilted in interest of one of the parties</p></li>
</ul>
<p>This last step requires a little explanation. </p>
<p>It is not unknown, especially in Australia, for competition policy to work by first allowing parties to negotiate, and then imposing a regulated settlement only if they fail.</p>
<p>And its normally about <a href="https://www.sciencedirect.com/science/article/pii/S0167624598000195?casa_token=oF0LxQKC9CsAAAAA:HACcYV8kROZwa1e0-1EpVSsx3hWhd3V7A685NOLwqO9jAX7PGZXWlMOMA49IAXd87tYDgP8QVbE">empowering the little guy</a>, in the belief that’s what leads to socially desirable outcomes.</p>
<h2>Little guys locked out</h2>
<p>But not in this case. It is only the large news organisations that would be allowed to negotiate over money. </p>
<p>It’s quite different to the system adopted in France, whose government is able to collect money from digital platforms via a tax, which can, should the government wish, be distributed to content providers on a criteria other than naked private interest. The French system isn’t clearly pro-competition either, but it at least provides a mechanism that could enable good outcomes to occur.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/banning-news-links-just-days-before-australias-covid-vaccine-rollout-facebook-thats-just-dangerous-155550">Banning news links just days before Australia's COVID vaccine rollout? Facebook, that’s just dangerous</a>
</strong>
</em>
</p>
<hr>
<p>The Australian process fails to deliver competition in two ways. </p>
<p>First, it allows the treasurer, rather than a judge, to designate the platforms the process will apply to. He is unlikely to designate a platform that large media organisations have no problem working with, as that will entail work. </p>
<p>Second, the treasurer is unable to designate a platform that doesn’t carry any Australian news. So if a digital platform wants out, it can get out.</p>
<p>Both of these things have begun to come to pass in the last day — even before the code has been legislated. </p>
<h2>Facebook gains a bargaining tool</h2>
<p>Google has done deals with some large news outlets and thereby signalled it will do deals with others to ensure it is not designated. It means Google won’t have to deal with all of the other smaller voices that also have a problem with it.</p>
<p>Facebook has opted out of the news content business altogether, as the law allows it to. It decided Australian news wasn’t worth it, at least for now. Australians can still share news from around the world, which in some ways is more valuable to them than local news they are already aware of.</p>
<p>Facebook might be doing it to get a better deal when negotiations take place.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/why-google-is-now-funnelling-millions-into-media-outlets-as-facebook-pulls-news-for-australia-155468">Why Google is now funnelling millions into media outlets, as Facebook pulls news for Australia</a>
</strong>
</em>
</p>
<hr>
<p>Bizarrely, before the government’s proposed legislation, if Facebook had excluded content from suppliers in order to get a better deal, Australia’s Competition and Consumer Commission could have prosecuted it for <a href="https://espace.library.uq.edu.au/view/UQ:160039">exclusionary conduct</a>. </p>
<p>The new code gives Facebook a licence to do what it has just done, and argue that it could not have been exercising market power because it was merely using the steps identified in the code as necessary for it to avoid compulsory arbitration. </p>
<p>Never mind that this really means Facebook </p>
<ul>
<li><p>has been able to demonstrate to news outlets how much they need it</p></li>
<li><p>is now able to get news organisations to agree to better conditions than if it had not been given this licence.</p></li>
</ul>
<p>In other words, the entire process has had the (I hope) unintended consequence of enhancing the very market power that it claimed to intend to contain.</p>
<h2>No more platforms, no more competition</h2>
<p>Those games aside: where will this end up? It will end up with the large digital platforms doing deals with the largest news outlets. Those deals will be multi-year lump-sum payments which enable everyone to go about their business. There will be no new digital platforms, no new content providers, no more competition. </p>
<p>The shareholders of the large digital platforms will be a few million dollars poorer and the shareholders of large Australian news outlets a few million dollars richer. </p>
<p>There will be no improvement in any competitive outcome whatsoever. As often happens in Australia, oligarchies will consolidate, and consumers will get nothing.</p><img src="https://counter.theconversation.com/content/155628/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joshua Gans owns shares in Facebook. He consults for government authorities outside of Australia on antitrust matters involving advertising and competition in digital platforms. He was a paid advisor to the ACCC on the Digital Platforms Inquiry in 2019. </span></em></p>Facebook might not have been able to cut off news sites were it not for the draft code. Whatever comes out of this is unlikely to be more competition.Joshua Gans, Professor of Strategic Management, University of TorontoLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1521902021-02-08T19:07:01Z2021-02-08T19:07:01ZWe allowed Facebook to grow big by worrying about the wrong thing<figure><img src="https://images.theconversation.com/files/382689/original/file-20210205-16-a1t566.jpg?ixlib=rb-1.1.0&rect=207%2C330%2C2368%2C1170&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">AlexandraPopova/Shutterstock</span></span></figcaption></figure><p>Australia and the United States have been waving through takeovers because the targets are small, something that’s usually good practice.</p>
<p>Under <a href="https://www.australiancompetitionlaw.org/legislation/provisions/2010cca50.html">Australian</a> law takeovers are normally permitted unless they would </p>
<blockquote>
<p>have the effect, or be likely to have the effect, of substantially lessening competition</p>
</blockquote>
<p>Under <a href="https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/merge">US</a> law they are normally permitted unless their effect </p>
<blockquote>
<p>may be substantially to lessen competition, or to tend to create a monopoly</p>
</blockquote>
<p>It means the key question authorities in both countries ask before approving a takeover is whether it is big enough to take out a substantial competitor.</p>
<p>While in most industries that’s usually the right question, it’s the wrong question when it comes to digital platforms, as Facebook’s readily-approved takeovers of Instagram and WhatsApp is making clear.</p>
<h2>Instagram, WhatsApp ‘too small to matter’</h2>
<p>They were waved through because when Facebook acquired <a href="https://money.cnn.com/2012/04/09/technology/facebook_acquires_instagram/index.htm">Instagram in 2012</a> and <a href="https://about.fb.com/news/2014/02/facebook-to-acquire-whatsapp/">WhatsApp in 2014</a> each was small. Instagram reportedly had only <a href="https://time.com/4299297/instagram-facebook-revenue/">13</a> full-time employees, WhatsApp <a href="https://theconversation.com/whatsapp-bought-for-19-billion-what-do-its-employees-get-23496">55</a>.</p>
<p>Now, well after the events, the US Federal Trade Commission in cooperation with the attorneys of 46 states is <a href="https://www.ftc.gov/news-events/press-releases/2020/12/ftc-sues-facebook-illegal-monopolization">suing Facebook</a>, alleging it has been illegally maintaining its social networking monopoly through a years-long course of anticompetitive conduct.</p>
<p>Identified as part of Facebook’s strategy are its 2012 acquisition of Instagram and its 2014 acquisition of WhatsApp. The Commission says the conduct </p>
<blockquote>
<p>harms competition, leaves consumers with few choices for personal social networking and deprives advertisers of the benefits of competition</p>
</blockquote>
<p>It is seeking a permanent injunction that could, among other things, require Facebook to divest assets including Instagram and WhatsApp and require it to give notice and seek prior approval for future acquisitions.</p>
<h2>No longer as small</h2>
<p>Why didn’t the Commission act earlier?</p>
<p>It’s because at the times of the acquisitions it was impossible for it to know whether Instagram or WhatsApp would ever have been in any position to offer Facebook much competition.</p>
<p>A 2019 <a href="https://ideas.repec.org/p/ces/ceswps/_7985.html">independent review</a> of merger decisions by the UK Office of Fair Trade confirms this, noting that back in 2012 Facebook faced much stronger competitors in photo-sharing than Instagram and that photo apps weren’t attractive to advertisers.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebook-is-merging-messenger-and-instagram-chat-features-its-for-zuckerbergs-benefit-not-yours-147261">Facebook is merging Messenger and Instagram chat features. It's for Zuckerberg's benefit, not yours</a>
</strong>
</em>
</p>
<hr>
<p>The authorities would have found it hard to convince a court that taking over Instagram would have substantially lessened competition.</p>
<p>Yet it did, hugely, and not because Instagram was necessarily the best target.</p>
<h2>Network effects empower the acquired</h2>
<p>Platforms such as Facebook and Google gain their market power from so-called “network effects” and the accumulation of consumer data. </p>
<p>A network effect is the benefit a network gets from having people already on it. A network that your friends aren’t on isn’t particularly attractive.</p>
<p>And the more people that join, the more data the network amasses to target ads for advertisers.</p>
<p>Looked at through the lens of network effects, the key to the successes of Instagram and WhatsApp was that they were bought by Facebook. It gave them access to a vast network of existing users and their data.</p>
<p>The importance of this is illustrated by the WhatsApp takeover. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=969&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=969&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=969&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1217&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1217&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382700/original/file-20210205-24-rupp11.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1217&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">WhatsApp wasn’t to link data with Facebook.</span>
</figcaption>
</figure>
<p>In Europe the authorities allowed the takeover only after Facebook informed them that it would be “<a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1369">unable to establish reliable automated matching between Facebook users’ accounts and WhatsApp users’ accounts</a>”. </p>
<p>Unfortunately this statement was incorrect, and the European Commission believes Facebook knew it at the time.</p>
<p>In 2017 after the WhatsApp and Facebook data was indeed linked, the Commission fined Facebook <a href="https://ec.europa.eu/commission/presscorner/detail/en/IP_17_1369">€110 million</a> for providing incorrect or misleading information</p>
<p>The problem wasn’t that Facebook acquired WhatsApp in particular. </p>
<p>It was that once it had acquired it (or any such platform), it was able to ensure it had access to the network and data needed to dominate its part of the market.</p>
<p>In other words, a Facebook acquisition of any proven start-up in any related field would have been likely to substantially lessen competition and should have been illegal.</p>
<h2>Courts and regulators are missing what matters</h2>
<p>This truth requires a change of mindset by both competition authorities and the courts. Both deal with the specifics of the target rather than the potential for the acquirer to supercharge the target and prevent any rival emerging to challenge it.</p>
<p>It means that to protect competition, dominant digital platforms should be prevented from acquiring any business in certain markets, even if there is plenty of competition in those markets and there’s nothing special about the targets.</p>
<p>Put bluntly, in some markets, whoever Facebook acquires will smother competition and the only way to stop that happening is to stop Facebook acquiring anyone.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/facebook-is-tilting-the-political-playing-field-more-than-ever-and-its-no-accident-148314">Facebook is tilting the political playing field more than ever, and it's no accident</a>
</strong>
</em>
</p>
<hr>
<p>This needn’t mean a blanket ban on dominant platforms acquiring firms, but it will mean the range of firms they can acquire will be severely wound back.</p>
<p>Of course, there’s nothing to stop them developing their own platforms in adjacent areas, although history has shown that even dominant platforms have a hard time developing, rather than buying, the necessary technology. </p>
<p>Google had to <a href="https://en.wikipedia.org/wiki/List_of_mergers_and_acquisitions_by_Alphabet">buy</a> Android, YouTube and Quickoffice.</p>
<h2>Proposed changes the wrong ones</h2>
<p>It also means Australia’s Competition and Consumer Commission is missing the mark in its drive to expand the reasons it can use for rejecting mergers.</p>
<p>The final report of its <a href="https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report%20-executive%20summary.pdf">digital platforms inquiry</a> asks for the power to reject mergers because of the likelihood that the acquisition would result in the removal of a potential competitor and the nature and significance of assets acquired. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=184&fit=crop&dpr=1 600w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=184&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=184&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=231&fit=crop&dpr=1 754w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=231&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/382698/original/file-20210205-24-gg9lrx.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=231&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>The requests focus on the target rather than what the acquirer can do for it.</p>
<p>What needs to be made clear is that a merger can be anticompetitive even if the target is not uniquely placed, either in terms of its ability to grow or its assets. </p>
<p>In the digital world an acquirer can substantially lessen competition simply by transforming the market it buys into. The target needn’t be the point.</p><img src="https://counter.theconversation.com/content/152190/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Stephen King is a Commissioner with the Productivity Commission. The views expressed in this article are his alone and should not be attributed to the Commission.</span></em></p>What made Facebook grow big wasn’t what its targets would have been without it, it was what they were able to do with it.Stephen King, Adjunct professor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1135542019-07-28T20:18:00Z2019-07-28T20:18:00ZWe can put a leash on Google and Facebook, but there’s no saving the traditional news model<p>Living with two preteens, I get almost daily requests to approve new apps. My standard response is to ask my kids to describe the app, why they want it, and how it makes money. </p>
<p>The last question is important, and not just to avoid to avoid in-app charges. Understanding the forces that drive the online economy is crucial for consumers, and increasingly citizens. All the new tools we access come at a cost even when they seem to be free. </p>
<p>How technology companies make money is a good question for digital media users of any age. It lies at the heart of the <a href="https://theconversation.com/digital-platforms-why-the-acccs-proposals-for-google-and-facebook-matter-big-time-108501">Australian Competition and Consumer Commission</a>’s inquiry into the power and profits of Google and Facebook, the world’s two most ubiquitous digital platforms.</p>
<hr>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=355&fit=crop&dpr=1 600w, https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=355&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=355&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=446&fit=crop&dpr=1 754w, https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=446&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/285931/original/file-20190728-43140-55ru6t.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=446&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Australians’ time spent online.</span>
<span class="attribution"><a class="source" href="https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report.pdf">ACCC Digital Platforms Inquiry Final Report</a></span>
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<hr>
<p>The competition watchdog’s job was to look at how online search engines, social media and digital content aggregators wield power in media and advertising, how that undermines the viability of traditional journalism (print in particular), and what can be done about it.</p>
<h2>Limited recommendations</h2>
<p>Its <a href="https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report.pdf">final report</a> makes a swag of recommendations to limit these platforms’ market dominance and use of personal data.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/what-australias-competition-boss-has-in-store-for-google-and-facebook-121037">What Australia's competition boss has in store for Google and Facebook</a>
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<p>One example is requiring devices to offer consumers a choice of search engine and default browsers. Google now requires Android phones to pre-install Google apps. This feeds a “default bias” that contributes to it being used for 95% of Australian searches. </p>
<p>Another is reforming Australia’s privacy laws to address the digital environment. Platforms’ “take it or leave it” policies now give consumers little choice on having their data harvested. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/consumer-watchdog-calls-for-new-measures-to-combat-facebook-and-googles-digital-dominance-120077">Consumer watchdog calls for new measures to combat Facebook and Google's digital dominance</a>
</strong>
</em>
</p>
<hr>
<p>But on the area of concern central to the inquiry’s establishment –
the decline in journalism – the recommendations are relatively minor:</p>
<ul>
<li>a code of conduct to treat news media businesses “fairly, reasonably and transparently”</li>
<li>“stable and adequate” government funding for the ABC and SBS<br></li>
<li>government grants (A$50 million a year) to support original local journalism</li>
<li>tax incentives to encourage philanthropic support for journalism.</li>
</ul>
<p>The reality is that there is little governments can do to reverse the technological disruption of the journalism business. </p>
<h2>Targeted revolution</h2>
<p>The internet has made stark that news organisations aren’t primarily in the journalism business. The stories they produce play an incomparable social role, but the business model is to deliver an audience to advertisers.</p>
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<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=258&fit=crop&dpr=1 600w, https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=258&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=258&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=325&fit=crop&dpr=1 754w, https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=325&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/285807/original/file-20190726-43114-1wgdsuj.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=325&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Australian advertising expenditure by media format and digital platform.</span>
<span class="attribution"><a class="source" href="https://www.accc.gov.au/system/files/Digital%20platforms%20inquiry%20-%20final%20report.pdf">ACCC</a></span>
</figcaption>
</figure>
<hr>
<p>Social media and search give advertisers better tools to target messages to more precise groups of potential consumers. It is a phenomenally better mousetrap. </p>
<p>Traditional advertising is expensive and inefficient. An advertiser pays to reach a broad audience, most with no interest in what is being advertised. </p>
<p>Search allows advertisers to pay to reach people precisely when they are looking for something. Google knows what you are interested in, and serves up advertising accordingly. In the last quarter alone advertising in its properties (Search, Maps, Gmail, YouTube, Play Store and Shopping) <a href="https://searchengineland.com/google-ad-revenue-growth-popped-back-in-q2-319960">made US$27.3 billion</a> in revenue. </p>
<p>Social media platforms have a different model, but one no less damaging to the old newspaper business model. It’s a bit more like traditional mass media advertising, selling the attention of users to advertisers, but in a far more targeted way. </p>
<p>To the extent Facebook, Instagram, Twitter and so on capture your attention, and effectively monetise content made by others through sharing, they also undercut traditional news businesses.</p>
<h2>Follow the money</h2>
<p>No regulation can fix this. As the competition watchdog’s report notes, Australian law does not prohibit a company from having substantial market power. Nor does it prohibit a company “from ‘out-competing’ its rivals by using superior skills and efficiency”. </p>
<p>No one – not even the tech companies – is necessarily to blame for the technological innovation that has disrupted traditional news organisations. </p>
<p>To see that, as with my kids understanding how their apps make money, it’s just a case of following the money.</p><img src="https://counter.theconversation.com/content/113554/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amanda Lotz receives funding from Australian Research Council. </span></em></p>No regulation can fix the disruption of journalism by search engines, social media and digital content aggregators.Amanda Lotz, Fellow, Peabody Media Center; Professor of Media Studies, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1200772019-07-26T06:22:19Z2019-07-26T06:22:19ZConsumer watchdog calls for new measures to combat Facebook and Google’s digital dominance<figure><img src="https://images.theconversation.com/files/285805/original/file-20190726-43130-1k4c1ue.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Facebook and Google potentially face fresh curbs on their market power.</span> <span class="attribution"><span class="source">Shutterstock.com</span></span></figcaption></figure><p>The Australian Competition and Consumer Commission (ACCC) has called for “<a href="https://www.accc.gov.au/media-release/holistic-dynamic-reforms-needed-to-address-dominance-of-digital-platforms">holistic, dynamic reforms</a>” to address the online dominance of digital behemoths such as Google and Facebook.</p>
<p>A <a href="https://www.accc.gov.au/publications/digital-platforms-inquiry-final-report">600-page report</a>, released today, makes 23 recommendations for regulating digital platforms – covering competition law, consumer protection, media regulation, and privacy. </p>
<p>Most of the suggested reforms are aimed squarely at countering the dominance of Facebook and Google, which the ACCC says has distorted a range of markets including advertising and media.</p>
<hr>
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<em>
<strong>
Read more:
<a href="https://theconversation.com/accc-wants-to-curb-digital-platform-power-but-enforcement-is-tricky-107791">ACCC wants to curb digital platform power – but enforcement is tricky</a>
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<p>The ACCC recommends forming a new branch to deal specifically with Google and Facebook. But it doesn’t propose itself as the sole watchdog: the report also recommends a regulatory role for the Australian Communications and Media Authority (<a href="https://www.acma.gov.au">ACMA</a>). </p>
<p>Meanwhile, the Office of the Australian Information Commissioner (<a href="https://www.oaic.gov.au">OAIC</a>) is called upon to develop an enforceable code to regulate platforms’ use of data. And even the Australian Tax Office will potentially be involved, as part of a proposal to introduce measures to encourage philanthropic funding of public-interest journalism.</p>
<p>Digital platforms with more than a million active users in Australia will be required to provide ACMA with codes to address the imbalance in the bargaining relationship between these platforms and news media businesses. These codes are expected to recognise the need for value-sharing and monetisation of news content. </p>
<p>Under the recommendations, ACMA would also be expected to monitor digital platforms’ efforts to identify reliable and trustworthy news, and to manage a mandatory take-down code for content that breaches copyright.</p>
<h2>Market muscle</h2>
<p>The ACCC report highlights the “substantial market power” enjoyed by Google and Facebook in their respective domains of web searching and social media. While it is not unlawful for firms to have this degree of power, it does mean they are likely to be subject to the (as yet untested) <a href="https://clmr.unsw.edu.au/australia-misuse-of-market-power-law">misuse of market power law</a> introduced in 2017.</p>
<p>The ACCC is concerned that current merger laws do not go far enough, given large platforms’ ability to remove future competitive threats by simply buying start-ups outright. Such acquisitions may also increase the platforms’ access to data. The ACCC considers that either or both of these could entrench a platform’s market power.</p>
<p>As a result, the report recommends changes to Australia’s merger laws to expressly require consideration of the effect of potential competition, and to recognise the importance of data. It also recommends that platforms should be obliged to notify the ACCC in advance of any proposed acquisition. </p>
<p>This is not a substantial change to the existing law, which already allows consideration of anti-competitiveness. But it is a signal that the ACCC will be focusing on this issue.</p>
<p>The ACCC also wants Google to allow Australian users of Android devices to choose their search engine and internet browser – a right already <a href="https://www.blog.google/around-the-globe/google-europe/supporting-choice-and-competition-europe/">enjoyed by Android users in the European Union</a>.</p>
<h2>Empowering consumers</h2>
<p>The ACCC recommends substantial changes to Australian Consumer Law, to address the huge inequalities in bargaining power between digital platforms and consumers when it comes to terms of use, and particularly privacy. </p>
<p>The report’s most significant proposal in this area is to outlaw “unfair practices”, in line with similar bans in the US, UK, Europe, Canada, and elsewhere. This would cover conduct that is not covered by existing laws governing the misuse of market power, misleading or deceptive conduct, or unconscionable conduct. </p>
<p>This could be relevant, for example, where a digital platform imposes particularly invasive privacy terms on its users, which far outweigh the benefits of the service provided. The ACCC also called for digital platforms to face significant fines for imposing unfair contract terms on users.</p>
<p>The report recommends a new mandatory standard to bolster digital platforms’ internal dispute resolution processes. This would be reinforced by the creation of a new ombudsman to assist with resolving disputes and complaints between consumers and digital platforms.</p>
<h2>Protecting privacy</h2>
<p>The ACCC found that digital platforms’ privacy policies are long, complex, vague, and hard to navigate, and that many platforms do not provide consumers with meaningful control over how their data is handled.</p>
<p>The report therefore calls for stronger legal privacy protections, as part of a broader reform of Australian privacy law. This includes agreeing with the <a href="https://www.alrc.gov.au">Australian Law Reform Commission</a> on the need for a <a href="https://www.alrc.gov.au/publications/16-new-regulatory-mechanisms/privacy-commissioner-investigations-serious-invasions-priv">statutory tort for serious invasions of privacy</a>.</p>
<h2>Legal action ahead?</h2>
<p>The ACCC also highlighted several matters on which it is considering future actions. These include the question of whether Facebook breached consumer law by allowing users’ data to be shared with third parties (potentially raising similar issues to the investigation by the <a href="https://www.ftc.gov/news-events/blogs/business-blog/2019/07/ftcs-5-billion-facebook-settlement-record-breaking-history">US Federal Trade Commission</a>, which this week resulted in a US$5 billion fine against Facebook), and whether Google has collated users’ location data in an unlawful way.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/digital-platforms-why-the-acccs-proposals-for-google-and-facebook-matter-big-time-108501">Digital platforms. Why the ACCC's proposals for Google and Facebook matter big time</a>
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<p>In a <a href="https://www.minister.communications.gov.au/minister/paul-fletcher/news/release-accc-digital-platforms-report">statement</a>, Treasurer Josh Frydenberg and federal communications minister Paul Fletcher accepted the ACCC’s overriding conclusion that there is a need for reform.</p>
<p>The federal government will now begin a 12-week public consultation process, and said it expects to release its formal response to the report by the end of the year.</p><img src="https://counter.theconversation.com/content/120077/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Rob Nicholls receives funding from The Allens Hub for Technology, Law and Innovation and the The International Association of Privacy Professionals (ANZ). He is the director of the UNSW Business School Cybersecurity and Data Governance Research Network, a director of the Regulatory Policy Institute (ANZ) and a member of the Centre for Law, Markets & Regulation.</span></em></p><p class="fine-print"><em><span>Katharine Kemp receives funding from The Allens Hub for Technology, Law and Innovation. She is a Member of the Advisory Board of the Future of Finance Initiative in India, the Centre for Law, Markets & Regulation and the Australian Privacy Foundation.</span></em></p>The Australian Competition and Consumer Commission says the sheer dominance of Google and Facebook has distorted other businesses’ ability to compete on their own merits.Rob Nicholls, Senior lecturer in Business Law, UNSW SydneyKatharine Kemp, Senior Lecturer, Faculty of Law, UNSW, and Co-Leader, 'Data as a Source of Market Power' Research Stream of The Allens Hub for Technology, Law and Innovation, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1199782019-07-14T18:46:14Z2019-07-14T18:46:14ZSimple fixes could help save Australian consumers from up to $3.6 billion in ‘loyalty taxes’<figure><img src="https://images.theconversation.com/files/283254/original/file-20190709-44505-1ul0utj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">On average, customers renewing their insurance policy now pay 34% more than new customers</span> <span class="attribution"><span class="source">www.shutterstock.com</span></span></figcaption></figure><p>A “loyalty tax” occurs when discounts are offered to new customers while longer-term customers pay more. Often this involves increasing premiums at the first and subsequent renewals. </p>
<p>As the NSW government’s <a href="https://www.eslinsurancemonitor.nsw.gov.au/">Insurance Monitor</a>, charged with making sure insurance companies do not charge unreasonably high prices or mislead policy holders, I have had my office research the prevalence of loyalty taxes. </p>
<p>Our <a href="https://www.eslinsurancemonitor.nsw.gov.au/sites/default/files/DiscussionPaper_Pricing_New%26Renewals_FINAL.pdf">research last year</a> showed, on average, customers renewing their insurance policy paid 27% more than new customers. Our most recent data indicates the gap has risen to 34%. This translates to hundreds of dollars for the average home and contents insurance policy. </p>
<p>Loyalty taxes appear to be widespread in Australia. The Australian Competition and Consumer Commission concluded from different pricing inquiries that loyal customers of both banks and energy providers end up paying more. It also demonstrated the price difference for insurance in northern Australian – with one insurer on average charging renewing customers 15-20% more than new customers.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/consumers-let-down-badly-by-electricity-market-accc-report-99697">Consumers let down badly by electricity market: ACCC report</a>
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<p>In Britain, regulators have calculated that customers are, by their fifth renewal, paying about 70% more than a new customer. The Competition and Markets Authority estimates the total cost of loyalty taxes in five British markets – mortgage, savings, home insurance, mobile phone contracts and broadband – to be about £4 billion (about A$7 billion) a year.</p>
<p>Translating this British estimate to the equivalent sectors in Australia (taking into account differences in population and GDP), the cost to consumers could be as high as A$3.6 billion, or at least $140 a year per person. This estimate does not include the energy sector, where evidence suggests the practice of charging longstanding customers more is rife.</p>
<h2>Deceptive practice</h2>
<p>Discounting to win new customers is not fair if the costs of that discount are passed on to longstanding customers. It discriminates against people who do not or cannot easily switch to another supplier. Vulnerable consumers – elderly consumers, those on low incomes, low education, or those with a disability – are disproportionately affected. </p>
<p>Complicated pricing structures often make it hard for consumers to compare quotes to see if one deal is better than another.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/inducing-choice-paralysis-how-retailers-bury-customers-in-an-avalanche-of-options-116078">Inducing choice paralysis: how retailers bury customers in an avalanche of options</a>
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<p>Consumer awareness of the loyalty tax appears to be low. It’s quite possible they may not be aware they are paying more each year. Companies can get away with making large price increases over successive renewals with little fear a customer will switch. </p>
<p>This practice is deceptive and falls short of community expectations. Greater respect for loyal customers is something the <a href="https://treasury.gov.au/publication/p2019-fsrc-final-report">Hayne Royal Commission</a> said financial institutions should have better regard for.</p>
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<em>
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Read more:
<a href="https://theconversation.com/what-are-we-teaching-in-business-schools-the-royal-commissions-challenge-to-amoral-theory-110901">What are we teaching in business schools? The royal commission's challenge to amoral theory</a>
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<h2>An important reform</h2>
<p>In NSW, in my role as Insurance Monitor, I introduced a requirement that insurers must display last year’s premium on the renewal notices to policyholders. The information is provided in a similar way as it is on a domestic water bill.
It’s now a mandatory requirement in NSW, coming into effect this month. </p>
<p>But the good news is that all of the major insurers have decided to make the change nationally. </p>
<p>Ensuring customers can see just how much their bill has gone up since last year is a significant reform – one I have been pushing over the past five years, since I was involved in monitoring the pricing of insurance in the context of an insurance levy reform in Victoria. </p>
<p>Information empowers consumers. It puts pressure on insurers to justify any increases. </p>
<p>If you are not happy with the increase, or the explanation for it, you should shop around and reassess your options. </p>
<p>You will need to get a couple of quotes. <a href="https://www.eslinsurancemonitor.nsw.gov.au/insurance-premium-survey">Our research shows</a> major variations in insurance quotes for identical homes with identical risks. Every quarter we seek quotes for a specified home with identical risk, and the highest quotes are up to 2.7 times that of the cheapest.</p>
<h2>More can be done</h2>
<p>The insurance market is in many respects like other sectors. While there are lots of brands to choose from, the market is highly concentrated and not particularly competitive. Like the banking industry, there are just four major players. </p>
<p>The larger problem, however, is on the demand side. Consumers are generally not well informed. The complexity of products and the large amount of fine print in contracts makes it hard for customers to tell if they are getting a fair deal.
Once they’ve made a choice, most will not think about switching, because it’s time-consuming, costly and inconvenient.</p>
<p>I hope this reform will help increase awareness of what consumers are paying – and not just for insurance. I encourage governments and policymakers around Australia to support and continue with reforms aimed at better disclosure for consumers. NSW has taken a small step. But much more can be done.</p><img src="https://counter.theconversation.com/content/119978/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Allan Fels 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 can do more to expose the deceptive corporate practice of charging loyal customers more, says competition champion Allan Fels.Allan Fels, Professorial Fellow, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/885602017-12-05T05:17:40Z2017-12-05T05:17:40ZWhat consumers need from the ACCC inquiry into Google and Facebook<figure><img src="https://images.theconversation.com/files/197708/original/file-20171205-22989-1s184cx.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Sometimes it's not clear to the consumer how Google search results come about, and what they show. </span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/bangkok-thailand-dec-152016-google-app-536806483?src=s-OT0ceQIWOxiMGUbAOL-A-1-4">from www.shutterstock.com </a></span></figcaption></figure><p>Yesterday the Australian Competition and Consumer Commission (ACCC) <a href="https://www.accc.gov.au/media-release/accc-commences-inquiry-into-digital-platforms">launched</a> an inquiry into digital platforms including Google and Facebook. </p>
<p>Chairman of the ACCC <a href="https://www.accc.gov.au/media-release/accc-commences-inquiry-into-digital-platforms">Rod Sims</a> said:</p>
<blockquote>
<p>The ACCC will look closely at longer-term trends and the effect of technological change on competition in media and advertising. </p>
<p>We will also consider the impact of information asymmetry between digital platform providers and advertisers and consumers </p>
</blockquote>
<p>The inquiry is overdue. To be useful, it should recognise that consumer protection law can play a larger role than it does currently in addressing platform power in the digital economy. Those leading it need to ensure its outcomes are truly beneficial for consumers, and not just the media companies and businesses using online advertising. </p>
<hr>
<p><em><strong>Read more:</strong> <a href="https://theconversation.com/confusion-over-googles-paid-services-could-land-it-in-trouble-again-57662">Confusion over Google’s paid services could land it in trouble, again</a></em> </p>
<hr>
<h2>How Google presents information</h2>
<p>To date, limited attention has been given to the issues faced by Australian consumers in internet markets, and particularly internet search. </p>
<p>Our research focuses on what consumers see and experience when they use Google.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1119&fit=crop&dpr=1 600w, https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1119&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1119&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1406&fit=crop&dpr=1 754w, https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1406&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/197724/original/file-20171205-22982-1v66gz0.jpeg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1406&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">A search for ‘coffee adelaide’ produced the following results - but which are ads, and which are organic content? <strong>CLICK TO EXPAND AND VIEW</strong></span>
</figcaption>
</figure>
<p>In the early days, Google’s search results page was essentially a combination of organic search results (those that result from Google’s algorithm that ranks according to relevance) and ads (a pay-per-click model of advertising). This provided for a relatively clean page with each of the two main elements delineated by labels and shading. </p>
<p>As Google has grown and its services evolved, Google’s search results page has become increasingly complex, with several competing elements. Many of these search results elements are derived from Google’s subsidiary “vertical search” services which provide users with a specific category of online content, such as Google Maps, Google News and Google Shopping.</p>
<p><a href="https://link.springer.com/article/10.1007/s10603-017-9349-9">Our research</a> shows this creates confusion. We found that: </p>
<ul>
<li><p>Australian consumers have a limited understanding about the operation and origin of different parts of the search results page</p></li>
<li><p>consumers were best able to understand and identify paid advertisements, as compared to results that were organic or linked to subsidiary services</p></li>
<li><p>there was particular confusion about the operation and origin of Google’s Shopping service, but also the origin of organic search results</p></li>
<li><p>confusion seems to be more pronounced among older users and those without higher education qualifications. </p></li>
</ul>
<p>These findings point to a gap in consumers’ digital literacy about Google search that should be addressed by this ACCC inquiry.</p>
<h2>Past ACCC focus on Google</h2>
<p>In 2011, the ACCC brought proceedings against Google for breaches of the then Trade Practices Act 1974 (Commonwealth). </p>
<p>The ACCC alleged that by publishing or displaying several misleading sponsored links, Google was liable for misleading and deceptive conduct, as the maker of those advertisements (the claim against the advertiser was settled). The ACCC also claimed Google had engaged in misleading and deceptive conduct by failing to distinguish sufficiently between its organic search results and sponsored links. </p>
<p>The case went all the way to the <a href="http://eresources.hcourt.gov.au/showCase/2013/HCA/1">High Court</a>, who dismissed the case against Google. They found the evidence against Google never rose so high as to prove that Google personnel, as distinct from the advertisers, had chosen the relevant keywords, or otherwise created, endorsed, or adopted the sponsored links. As such, Google was not liable as the maker of misleading and deceptive advertising content. </p>
<p><a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/cases/cth/FCA/2011/1086.html">Justice Nicholas in the Federal Court at trial</a> also found against the ACCC’s allegation that Google had failed to distinguish its organic search results and sponsored links. He said reasonable members of the public would have understood sponsored links were advertisements that were different from Google’s organic search results.</p>
<p>As shown above, our research suggests otherwise. Despite its <a href="http://eresources.hcourt.gov.au/showCase/2013/HCA/1">win against the ACCC in the High Court in 2013</a>, Google should consider taking simple steps to label the different parts of its search results page more clearly, or risk legal action once more. </p>
<h2>A guide for the future</h2>
<p>In <a href="https://cdn.tspace.gov.au/uploads/sites/60/2016/07/Daly_Angela_and_Scardamaglia_Amanda.pdf">our recent submission</a> to the Australian Consumer Law Review Issues Paper, we advocated for an evidence-based approach to all regulatory action under Australian consumer law.</p>
<p><a href="https://link.springer.com/article/10.1007/s10603-017-9349-9">We have also argued</a> that agencies such as the ACCC should consider introducing “best-practice” guidelines for online search providers and comparison shopping services in relation to the use of labelling and disclaimers to clearly identify source and affiliation, in order to minimise consumer confusion. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/yes-your-doctor-might-google-you-74746">Yes, your doctor might Google you</a>
</strong>
</em>
</p>
<hr>
<p>In the United States, the <a href="https://www.ftc.gov/news-events/press-releases/2013/06/ftc-consumer-protection-staff-updates-agencys-guidance-search">Federal Trade Commission issued similar guidelines</a> about how these services should operate, and stated that failure to adequately distinguish between these different kinds of results may constitute a deceptive practice in violation of consumer protection laws. These guidelines provide a good starting point for regulatory agencies in Australia.</p>
<p>We also think further research is warranted that focuses on how different factors influence display of search results. We know this can vary depending on region, user preferences and settings, browsing history and devices used (PC, laptop, tablet or mobile phone). </p>
<p>We believe there is the potential for a more active role for consumer law in the digital ecosystem to address problems emanating from large and powerful platform providers such as Google than it previously has occupied. Perhaps this inquiry is the first step towards that. </p>
<p>However, it will be important for the ACCC to separate out the interests of consumers from the interests of businesses using Google to advertise, and media companies. Sometimes these interests converge, but not always. This can be seen in the recent European Commission investigation into Google’s alleged abuse of a dominant position in the search and advertising markets. These proceedings have resulted in <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3012437">an outcome which may benefit Google’s competitors more than consumers</a>. </p>
<p>The ACCC should be wary about producing the same outcome in its own inquiry, which <a href="https://www.accc.gov.au/media-release/accc-commences-inquiry-into-digital-platforms">is expected to</a> produce a preliminary report in December 2018, and a final report in June 2019.</p><img src="https://counter.theconversation.com/content/88560/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Amanda Scardamaglia received an internal grant from Swinburne's Faculty of Business & Law and Faculty of Health, Arts and Design to fund this research.</span></em></p><p class="fine-print"><em><span>Angela Daly received internal grants from Swinburne’s Faculty of Business and Law and Faculty of Health, Arts and Design to fund this research. She is a member of Digital Rights Watch Australia’s board of directors and is chair of the Australian Privacy Foundation’s International Committee.</span></em></p>The ACCC’s inquiry into digital platforms should make it easier for users to identify advertising on Google.Amanda Scardamaglia, Senior Lecturer, Department Chair, Swinburne Law School, Swinburne University of TechnologyAngela Daly, Vice Chancellor's Research Fellow, Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/808062017-07-12T09:24:18Z2017-07-12T09:24:18ZThe Tabcorp/Tatts case should end the clash between the ACCC and the Competition Tribunal<p>A long-running tension between the Australian Competition and Consumer Commission (ACCC) and the Australian Competition Tribunal is coming to a head. The ACCC disagrees with the Tribunal’s decision on the merger of two of Australia’s biggest gaming companies, Tabcorp Holdings and Tatts Group, and has <a href="http://www.judgments.fedcourt.gov.au/judgments/Judgments/tribunals/acompt/2017/2017acompt0001">taken the matter to the Federal Court</a>.</p>
<p>The ACCC and the Tribunal disagree on how to value the “public benefit” of a merger, based on whether the benefits flow to the merging parties (in this case Tabcorp/Tatts) or to the broader public. The Federal Court will now have an opportunity to clarify this, ensuring that the ACCC and the Tribunal are applying the same standard, giving more certainty to Australian businesses.</p>
<p>The ACCC typically places more weight consumer welfare, in the form of lower prices and better products, when considering mergers. Whereas the Tribunal is more willing to count benefits that flow to the merging parties, such as cost savings, even when these are not passed on to consumers. However, the Tribunal does <a href="http://www.austlii.edu.au/au/cases/cth/ACompT/2004/9.html">acknowledge</a> that these benefits might “carry less weight than gains which flow to the community generally”.</p>
<p>Tabcorp had initially sought clearance of the merger from the ACCC, but <a href="https://www.tabcorp.com.au/news-media/media-releases/tabcorp-to-seek-authorisation-from-the-australian">withdrew this application</a> after the ACCC raised some initial concerns. Tabcorp gambled that it could receive a more favourable and efficient outcome by proceeding directly to the Tribunal.</p>
<p>The Tribunal then <a href="http://www.judgments.fedcourt.gov.au/judgments/Judgments/tribunals/acompt/2017/2017acompt0001">authorised</a> the Tabcorp/Tatts merger, accepting <a href="https://www.tabcorp.com.au/news-media/media-releases/tabcorp-to-seek-authorisation-from-the-australian">Tabcorp’s claims</a> that there would be “substantial” public benefit from the merger taking place. The Tribunal thought the possible detrimental effects of the merger were either unlikely to arise or didn’t outweigh the benefits of the merger. These detriments included reduced competition and other factors such as increased problem gambling and reduced employment.</p>
<p>In referring the decision to the Federal Court, the ACCC <a href="https://www.accc.gov.au/media-release/accc-appeals-tribunal-decision-in-tabcorp-tatts-merger">claims</a> that the Tribunal made an error by giving inappropriate weight to benefits that would be retained by Tabcorp/Tatts and not shared with consumers. </p>
<h2>Why refer the Tribunal’s decision?</h2>
<p>The current tension between the ACCC and the Tribunal leads to uncertainty for businesses about public benefit assessment, particularly in merger cases.</p>
<p>However, the court will not be able to reverse the Tribunal’s authorisation of the Tabcorp/Tatts merger. The most the ACCC can hope for is that the Federal Court agrees that the Tribunal made an error and sends the matter back to the Tribunal for reconsideration. Even if it does this, there is a good chance that the outcome will be the same. </p>
<p>But there’s still a good reason for the Federal Court to hear this out: to settle the importance of the trade-off between the benefits to the merging parties and consumers.</p>
<p>“Public benefits” are not defined in the <a href="https://www.legislation.gov.au/Series/C2004A00109/Compilations">Competition and Consumer Act 2010</a>. But the Tribunal <a href="https://www.accc.gov.au/system/files/49%20-%20Queensland%20Co-operative%20Milling%20(1976)%20ATPR%2040-012.pdf">considers it to include</a> anything of value to the community more generally. </p>
<p>For example, when assessing the <a href="http://www.austlii.edu.au/au/cases/cth/ACompT/2004/9.html">Qantas/Air New Zealand alliance in 2004</a>, the Tribunal accepted Qantas’ claims that the public would benefit because it was in the national interest for the airline to be “strong and efficient” and that the move would benefit tourism. </p>
<p>The ACCC grants authorisations for a variety of types of company conduct, not related to mergers. This includes collective bargaining which might otherwise breach cartel laws. In each of these assessments the ACCC applies a similar public benefit assessment to the one applied by the Tribunal to mergers.</p>
<p>If the <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22legislation%2Fbillhome%2Fr5851%22">Competition and Consumer Amendment (Competition Policy Review) Bill</a> (currently before parliament) passes, the ACCC will regain the power to grant merger authorisations. Any authorisation granted by the ACCC is subject to appeal to the Tribunal. So the approach the Tribunal takes in assessing public benefits will have a direct influence on the ACCC.</p>
<h2>What next?</h2>
<p>The Federal Court won’t review what detrimental effects the Tribunal considered, such as a potential increase in problem gambling (a concern raised by the ACCC) or the cost of lost employment (a concern raised by another party in this case). These concerns were quickly dismissed by the Tribunal, which instead focused on economic considerations.</p>
<p>Given the potential for mergers to impact on social or environmental goals or other matters of public interest (both beneficially and detrimentally), it’s a pity the court will not have the opportunity to comment on how these factors should be balanced against economic factors.</p>
<p>Despite these limitations, the Federal Court can end the tension between the approach of the Tribunal and the ACCC to public benefit assessment. This will result in greater certainty for businesses.</p><img src="https://counter.theconversation.com/content/80806/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julie Clarke 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 Federal Court will now have an opportunity to clarify how mergers should be valued, ensuring the ACCC and the Australian Competition Tribunal are applying the same standard.Julie Clarke, Associate Professor, Melbourne Law School, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/463402015-09-14T20:17:12Z2015-09-14T20:17:12ZAll out of fresh ideas: how supermarket giants send mixed messages about food<figure><img src="https://images.theconversation.com/files/94629/original/image-20150914-1237-1f4ve1i.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Despite the dominance of Coles and Woolworths, consumers are still choosing to buy their fresh food at local fruit and vegetable shops and farmers' markets.</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/joybot/5963455201/in/photolist-a5Ygt8-7SzKck-t4dLaR-a9YjSS-4iJxde-wK5HR-4DXew2-opzzbH-9tqc19-4wrdSS-3cRvnP-8vhP9x-82Bzrj-gefxGX-bzfb1B-nveNCe-bn2MPs-7MHbTH-bkhev9-3oDbuh-7WP8sX-cXnb6o-eaxVV1-gefMBb-3dxEsG-7cPjYV-fiH6N8-ojzuzj-6Ys3qV-6TnC7A-9BjQQz-8vkRXy-567e7t-6CYNJz-auWhUi-91P5pu-oY8vf9-qbXjcc-a1UkV4-5EJqwB-aqY3BF-b7cRL4-nwseM9-7eekgw-5nLSjt-5iTPpm-afffgB-7w1UKE-4MW9ES-617jqV">Sarah Joy/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p><em>Fast food giant McDonald’s has been under a cloud in recent years as its US customers turn to alternatives. In this <a href="https://theconversation.com/au/topics/fast-food-reinvented">“Fast food reinvented”</a> series we explore what the food sector is doing to keep customers hooked and sales rising.</em></p>
<hr>
<p>Australia’s two main supermarket chains Coles and Woolworths’ representation of “fresh” and “local” food reflects heightened interest among consumers about these values. But they also contribute to concerns about food production and the supply chain. </p>
<p>Both have employed celebrity chefs with a reputation for caring about such matters. When he joined forces with Woolworths, UK chef Jamie Oliver <a href="http://www.smh.com.au/it-pro/jamie-oliver-burnt-by-woolworths-partnership-20140617-3aadz.html#ixzz3kkWFmGRS">explained</a>: </p>
<blockquote>
<p>part of what I’m doing with Woolies is looking at standards, and ethics, of where our sort of food comes from.</p>
</blockquote>
<p>But when pressed on the demands Woolworths had made for farmers to surrender some of their profits to pay for his campaign, Oliver said he was just an employee. </p>
<p>The problem is that his claims and the supermarket’s promotion suggest that standards and ethics – as well as the growers asked to fund messages about themselves – are well regarded by the public. This is due, in part, to the strategies of producers and small retailers that the two supermarkets have appropriated to win the custom of consumers who care where their food comes from. </p>
<h2>Private labels</h2>
<p>Consider the case of Macro foods: the chain, rebadged as Thomas Dux, an urban store format, was a shift from the freestanding supermarkets established in the 1960s. When it was bought out by Woolworths in 2009, Macro founder Pierce Cody saw the <a href="http://www.theaustralian.com.au/business/news/woolies-buys-organic-food-chain/story-e6frg906-1225711779119">sale of the chain</a> as evidence of the work they put in:</p>
<blockquote>
<p>to take organic to a large-format, mainstream model rather than little folksy corner stores.</p>
</blockquote>
<p>The chain was used to test the market for Woolworths’ privately labelled gourmet goods. And Coles has its own organic label.</p>
<p>The proliferation of privately labelled goods (which are made by one company for offer under another company’s label) has diminished the product range offered by supermarkets. Coles’ product range, for instance, <a href="http://www.futuredirections.org.au/publications/food-and-water-crises/1814-market-power-in-the-australian-food-system.html">dropped by 11%</a> between 2010 and 2012. </p>
<p>Private-label items, produced in conjunction with specific suppliers, compete directly with other products in the range, dominating shelf space and usually offering a lower price. And this is only one part of the pincer movement reducing the number of suppliers. </p>
<p>Australia’s largest dairy company, Devondale Murray-Goulburn, <a href="https://theconversation.com/coles-milk-deal-gives-supermarket-suppliers-a-reason-to-be-sour-13600">may grow</a> from the exclusive deal it has struck with Coles to provide milk, for instance, but in the process it reduces the number of milk suppliers in the market. </p>
<h2>A fairer go for farmers</h2>
<p>Supermarkets use the romantic image of the small family farm to play up their close relationship with farmers and suppliers. But it’s also employed in arguments for reforming the sector, because of the commercial disadvantage small family farms have in the domestic food system. </p>
<p>The <a href="http://agwhitepaper.agriculture.gov.au/">Agricultural Competitiveness White Paper</a> released earlier this year, for instance, recommends a new commissioner dedicated to agriculture and a more “farm savvy” Australian Competition and Consumer Commission (ACCC) to encourage fair trading. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/94630/original/image-20150914-1254-n69fzp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/94630/original/image-20150914-1254-n69fzp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/94630/original/image-20150914-1254-n69fzp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/94630/original/image-20150914-1254-n69fzp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/94630/original/image-20150914-1254-n69fzp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/94630/original/image-20150914-1254-n69fzp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/94630/original/image-20150914-1254-n69fzp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Both Coles and Woolworths have employed celebrity chefs, such as Jamie Oliver, with a reputation for caring about fresh and local food.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/scandic-hotels/4327863806/">Scandic Hotels/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc/4.0/">CC BY-NC</a></span>
</figcaption>
</figure>
<p>The aim is to strengthen competition in agricultural supply chains, which will engage the ACCC more directly with supermarkets. And the first priority is to help farmers achieve a better return for their produce. But this is only one sign that Woolworths and Coles face a political environment that is increasingly hostile to their sourcing policies (as well as growing consumer scrutiny). </p>
<p>The code of conduct for grocery wholesalers and retailers (<a href="https://www.accc.gov.au/business/industry-codes/food-and-grocery-code-of-conduct">Food and Grocery Code</a>), for instance, discloses the existence of practices by grocery retailers and wholesalers in their dealings with suppliers, which motivated its development. It mentions “preventing a supplier from fulfilling obligations” by placing their products behind other competitors’ products on shelves such that consumers cannot see them, and “payment for wastage” that occurs at the retailer’s premises. </p>
<p>While the code fails to address the inequality of market power in the supply chain, it does reflect the challenging environment in which Australian farmers and suppliers now operate. </p>
<h2>Public concern</h2>
<p>Marketing by supermarket giants highlights public interest in food production, supply and retailing. When Woolworths brought back its <a href="https://www.youtube.com/watch?v=W8uvoEsLFo0">“Fresh Food People” campaign</a> last year, the advertising featured a range of products from farm to store complete with “fresh food stories” of individual farmers. </p>
<p>But the UBS Supermarket Supplier Survey <a href="http://www.smh.com.au/business/comment-and-analysis/woolworths-report-card--plenty-of-room-for-improvement-20150625-ghxo9q.html">tells a different story</a>; Woolworths’ rating on quality of fresh food produce lags behind Coles. </p>
<p>Besides selling the brand of Woolworths, the marketing also appropriates the ideal of farming and relationships with suppliers to sell products. The company <a href="http://www.smh.com.au/business/woolworths-goes-local-to-blunt-supplier-critics-20130915-2tsrq.html">considered a “local” retail brand</a> in 2013, in addition to its other labels such as Macro and Woolworths Select.</p>
<p>This suggests Woolworths still believes it can increase or maintain its market share with buzzwords despite how incongruous these sound coming from a supermarket giant. But while local might be more important to consumers than fresh, supermarkets are falling behind the innovations of <a href="http://www.futureoflocalfood.org.au">local food producers</a> to create a fairer food system. </p>
<h2>Coming out on top</h2>
<p>Supermarkets have tried to tailor their products to include organic, natural and local foods to meet consumer demand. But while Coles and Woolworths <a href="http://theconversation.com/factcheck-is-our-grocery-market-one-of-the-most-concentrated-in-the-world-16520">control 80% of the grocery market</a>, they have 45.5% of the market in fruit and vegetables and 47.2% of meat. </p>
<p>The imbalance in market power favours the duopoly. But eaters are still choosing to buy their fresh food at local fruit and vegetable shops, butchers and farmers’ markets. There, they can engage directly with the people who grow their food and not just see representations of them. </p>
<p>A <a href="http://ausfoodnews.com.au/2014/03/24/more-australians-shopping-for-fresh-vegetables-at-farmers%E2%80%99-markets-%E2%80%98local%E2%80%99-food-trend-grows.html">survey undertaken</a> last year on behalf of the Australian Farmers’ Markets Association, for instance, found that 14% of respondents typically buy their vegetables at a farmers’ market. </p>
<p>Supermarkets have stopped merely copying each other: from liquor to petrol to hardware. It’s clear from sales, from how they advertise and from consumer concern about food security and food sovereignty that what they really need to worry about is the combined agency of farmers and the power of consumers. Put together, the story isn’t so gloomy for the food sector.</p><img src="https://counter.theconversation.com/content/46340/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Adele Wessell 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>Coles and Woolworths’ representation of “fresh” and “local” food reflects heightened interest among consumers about these values. But they also contributes to concerns about the supply chain.Adele Wessell, Associate professor, Southern Cross UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/395822015-03-31T19:10:00Z2015-03-31T19:10:00ZHarper makes case for competition overhaul: experts react<p>The removal of restrictions on retail trading hours, pharmacies and parallel imports, and a controversial “effects test” on existing misuse of market power rules are among the many recommendations contained in the <a href="http://competitionpolicyreview.gov.au/files/2015/03/Competition-policy-review-report_online.pdf">final report</a> of the Competition Policy Review released yesterday.</p>
<p>Boosting competition in the health, education and community sectors has been identified as a priority by the panel, which said even small improvements in these areas would have “profound impacts on people’s standard of living and quality of life”.</p>
<p>The panel has also named planning and zoning rules, taxi regulation and product standards as areas that require an immediate regulatory review.</p>
<p>It says state and territory governments should subject restrictions on competition in planning and zoning rules to the public interest test. It also said regulation limiting the number of taxi licences has raised costs for consumers, and hindered the emergence of innovative passenger transport services. </p>
<p>The review panel led by Emeritus Professor Ian Harper, says section 46, which deals with the misuse of market power, is deficient in its current form and out of step with international approaches.</p>
<p>Instead it wants to prohibit conduct by firms with substantial market power that has the “purpose, effect or likely effect” of substantially lessening competition.</p>
<p>The report also calls for cartel provisions to be simplified, and price signalling provisions, which have applied specifically to banks, to be removed and replaced with a similar effects test.</p>
<p>The panel has also called for a new national competition body to replace the National Competition Council, one that would be “an independent entity and truly ‘national’ in scope”, as well as the establishment of a pricing and utilities commission separate from the Australian Competition and Consumer Commission (ACCC).</p>
<p>It says collective bargaining and collective boycott arrangements should be made more flexible and easier for small business to use.</p>
<p>Road pricing should be made cost-reflective, according to the review, and regulations governing retail trading hours and parallel imports, and
pharmacy location and ownership rules should be removed.</p>
<p>It says the current exception to competition law for conditions of intellectual property licences in consumer law should be repealed.</p>
<p>The panel says the rise of Asia and other emerging economies, Australia’s ageing population and the emergence of new technologies all help make the case for competition policy reform. It says delaying policy action will make reform “more difficult and more sharply felt”. </p>
<p>The review panel received around 600 submissions in response to its draft report, 40% came from peak and advocacy bodies, around 30% from individuals, around 25% from business, and the remainder from governments.</p>
<p>We asked experts to respond.</p>
<hr>
<p><strong>Allan Fels, Professorial Fellow, Melbourne University</strong></p>
<p>The Harper review has addressed the two most pressing needs in competition policy. The first is to modernise competition law by strengthening the protection of small business from economically harmful illegitimate anti-competitive behaviour by big firms with market power, and at the same time by simplifying the law, which is far too long.</p>
<p>This is to be done through the introduction of an effects test in a simplified section 46. This conforms with standard international practice. </p>
<p>Harper has replaced a previous proposed defence under section 46 with an improved set of economic criteria that can be used to distinguish between pro competitive and anti-competitive behaviour and it is wrong to think that the line between competitive and anti-competitive behaviour should be drawn by a purpose test. What is needed is an economic test that Harper proposes.</p>
<p>The second change is to revise the national competition policy of Hilmer covering taxis, bookshop trading hours and pharmacies and to extend competition choice to areas such as education, health and the provision of public services. These are important but they are much more complicated than applying competition law to normal businesses. The difficulties that will be experienced are comparable to those experienced in regard to deregulation of university fees and to medical co-payments.</p>
<hr>
<p>*<em>Graeme Samuel, Vice-Chancellor’s Professorial Fellow at Monash University
*</em></p>
<p>The proposed competition policy reforms are a re-energisation of the National Competition Policy reform package commenced in 1995 but suspended by COAG in 2004. The fundamental philosophy underlying these reforms is that the disciplines of competition should apply to all sectors of the economy unless the public interest is better served by retaining anti-competitive restrictions. But the corollary is that governments must place the interests of the public above those of private vested interests. The difficulty of course is in the detail, which the review doesn’t examine.</p>
<p>Governments have previously shirked from implementing so many of the reforms recommended by the Harper panel because of some very strong vested interests, like the Pharmacy Guild, or in relation to restrictive retail trading hours, the pleadings of unions and small business interests in Western Australia, South Australia and Queensland. Other industries, such as taxis, are beset with financial and social complexities flowing from decades of arcane regulations that have placed the public interest at the bottom of the list of policy considerations. </p>
<p>In the end governments have to make up their minds – will they place the public interest first or continue to be beholden to loud and persistent vested interests? Competition should reign supreme and should be presumed to be in the public interest unless it can be demonstrated by objective independent analysis that the public interest is better served by competition restrictions.</p>
<p>We should also remember the technological revolution that is taking place with the digital economy. It’s going to make so many anti competitive regulations of the past simply inoperable. As consumers exercise their choice, using the options available to them in the ever expanding digital and sharing economy, the regulatory mechanisms developed in past decades will prove powerless in the face of overwhelming public preference for how and with whom it deals. Do we see consumers restricting themselves to arcane restrictive trading hours in the 24/7 environment of on line trading?</p>
<h2>Regulatory institutions</h2>
<p>The recommendations as to the structure of the regulatory institutions are very sensible. The separation of utility regulation from the ACCC into a specialist utilities regulator reflects the fundamentally different culture from that associated with pure competition and consumer protection enforcement. </p>
<p>The proposed Australian Council for Competition Policy is essential to provide a continuing process of competition policy reform education and advocacy. </p>
<h2>Amendments to law</h2>
<p>The repeal of the price signalling provisions is eminently sensible. The current provisions are a mutant, resulting from a patchwork of legislative amendments enacted in 2011 which should never have been confined to banks alone but, like the other competition provisions of the law, should have applied economy wide. </p>
<h2>Section 46 - Misuse of Market Power</h2>
<p>This section is titled in the Harper report as “Misuse of market power”. But the proposed amendments have nothing to do with “misuse” for they apply to all conduct by big business.The primary prohibition effectively threatens big business with substantial penalties if it engages in any conduct that has the purpose, effect or likely effect of substantially lessening competition. The section is a misconceived approach to satisfy the urgings of small business groups. </p>
<p>The suggested legislative guidance to the courts is bewildering - it asks the courts and big business to weigh the pro-competitive and anti-competitive impact of conduct, that is conduct which is subject to the charge that it is likely to substantially lessen competition. This is so stifling on the commercial activity of big business that one can only wonder how a committee that on the one hand recommends pro-competitive reforms to commerce, can then proceed to urge an significant intrusive constraint on the commercial activities of big business. It is such a fundamental contradiction in economic philosophy, that it leaves one wondering as to the motivations for this recommendation which, as the Harper panel tabulates, has been rejected in no less that ten reviews over the past four decades. </p>
<hr>
<h2>Separate pricing and utility regulator</h2>
<p><strong>Joe Dimasi, Professorial Fellow, Department of Economics, Monash University:</strong></p>
<p>The Harper Review has sometimes been described as Hilmer Mark2. However, the two reviews differ in at least one major respect. Hilmer’s focus was relatively tight and paid particular attention to the restructure and regulation of monopoly network facilities. It’s fair to say that it had a substantial impact in this area. Harper’s broad mandate has resulted in a report which traverses a wide range of issues with many useful recommendations.</p>
<p>Harper’s wide brief made it difficult to look at all the issues in detail. One area of significant current controversy which escapes attention is the application of regulation to bottleneck network facilities. </p>
<p>Harper’s recommendation to establish a multi-industry access and pricing regulator which is separate from the ACCC, is useful. Given the breadth of the ACCC’s remit and the differences in skills and culture required to undertake these very different roles, that recommendation makes a lot of sense.</p>
<p>However, the way these facilities are regulated is important and requires greater attention. The regulation of utilities and bottleneck facilities today does not look much the way it was envisaged by Hilmer, an issue we’ll be looking at in a forthcoming paper by the Monash Business Policy Forum.</p>
<p>Regulatory decisions can take up to two years and if appealed can take several more years to resolve. This soaks up large amounts of the regulator’s resources.</p>
<p>And most importantly it results in far from socially ideal outcomes. For example, there is a widely acknowledged over-investment in poles and wires in electricity which has been significantly affected by the regulatory system. The rules and regulatory approach rather than just the regulator are the issues here.</p>
<p>When independent utility regulation was introduced in Australia in the 1990s, the aim was to avoid the well-understood widespread pitfalls of cost-of-service seen in the United States, as well as to learn from UK reforms which introduced regulation that provided greater incentives for the regulated business to operate efficiently. </p>
<p>Despite these aims it appears that we have ended up with a system that has the negative features of cost-of-service regulation without some of the improvements that we see, for example, in the US regulatory systems. Perhaps in establishing a separate pricing and access regulator, we also need to look at how we regulate.</p>
<hr>
<h2>Intellectual property</h2>
<p><strong>Bruce Baer Arnold, Assistant Professor, School of Law, University of Canberra</strong></p>
<p>From a consumer, small business and education perspective the report lacks the courage of its intellectual property convictions. It notes sustained cogent criticisms of Australia’s regime by a diverse range of local and overseas stakeholders. It acknowledges some of the plethora of independent fact-based reviews of that regime, including studies on <a href="https://www.mja.com.au/journal/2015/202/6/costs-australian-taxpayers-pharmaceutical-monopolies-and-proposals-extend-them?0=ip_login_no_cache%3D9488441e0981fb1af103ddf8fb3378e4">pharmaceutical patents</a>, software and other IT pricing, and copyright in the digital environment. </p>
<p>The report endorses work by the Productivity Commission, the Australian Law Reform <a href="http://www.alrc.gov.au/inquiries/copyright-and-digital-economy">Commission</a>, the ACCC and parliamentary <a href="http://www.aph.gov.au/parliamentary_business/committees/house_of_representatives_committees?url=ic/itpricing/report/index.htm">committees</a>. It then squibs by calling for yet more inquiries. One will be an overarching Productivity Commission review over a 12 month period that will allow a nervous government to defer annoying media proprietor Rupert Murdoch, Big Pharma and <a href="https://theconversation.com/clash-of-the-titans-apple-adobe-and-microsoft-under-fire-at-it-pricing-inquiry-12878">Big IT</a> until after the election. </p>
<p>More disingenuously, the report calls for an independent review regarding “negotiating mandates to incorporate intellectual property provisions in international trade agreements”, recognising that trade negotiations require independent transparent analysis of costs and benefits to Australia rather than undue benefits for offshore rights-holders. </p>
<p>The report says “such an analysis should be undertaken and published before negotiations are concluded”, a polite way of saying that both the Coalition and ALP have been sleepwalking towards acceptance of the still-secret TransPacific Partnership Agreement that will punish Australian <a href="http://www.theage.com.au/comment/the-age-editorial/free-trade-not-a-licence-to-rip-off-australia-20131117-2xp5n.html">consumers</a> and the people who pay for the <a href="https://theconversation.com/how-trade-agreements-are-locking-in-a-broken-patent-system-32564">public health system</a>. </p>
<p>The report sensibly calls for ending parallel import restrictions, unlikely to be heeded by the Attorney-General. That common-sense pro-competition call is offset by recommending erosion of the consumer presence on the ACCC. Effective competition policy requires less protection for Pfizer, <a href="https://theconversation.com/apple-google-and-samsung-is-it-peacetime-in-the-patent-wars-26949">Apple</a> and Hollywood, more respect for consumers, and bravery on the part of Governments. Given the history of unimplemented IP reports, don’t hold your breath.</p>
<hr>
<h2>Pharmacy regulation & private health insurance</h2>
<p><strong>Ian McAuley, Lecturer, Public Sector Finance, University of Canberra</strong></p>
<p>In what should be an uncontentious suggestion the review calls for the removal of pharmacy and ownership rules. These regulations are certainly past their use-by date (if they ever had any justification in the first place). They’re one of the last redoubts of strong industry protection, but successive governments have been reluctant to remove these privileges.</p>
<p>The review members seem to have overlooked anti-competitive regulations on non-prescription pharmaceuticals. There are two restrictions protecting pharmacies: the “Schedule 2” list of drugs which can be sold only in a pharmacy, and the “Schedule 3” list of drugs which can be sold only by a pharmacist. </p>
<p>While there is justification for Schedule 3 regulations, it is hard to see how consumers gain any protection from Schedule 2. Pharmacists themselves generally do not operate their counters: taking a Schedule 2 drug to a checkout in a pharmacy is the same as taking any item to a supermarket checkout. </p>
<p>In relation to private health insurance, the review seeks “lighter touch” regulation, including the abolition of price regulation of premiums. This aligns with the general theme of the review.</p>
<p>It also suggests that “health funds could be allowed to expand their coverage to primary care settings.” That suggestion, coming from a body concerned with competition, is bizarre because insurance, by its very nature, is about suppressing price signals, even though price signals are the very mechanism that make competition work. When a service is free at the time of delivery there is an inevitable incentive for over-use and price escalation.</p>
<p>It appears that the review members have gone beyond considerations of competition, and into a general deregulationist ideology. Allowing private insurance into primary care would almost certainly see a steep rise in health care costs, further undermining Medicare’s capacity to keep control on the cost and availability of health care.</p>
<hr>
<h2>Alcohol</h2>
<p><strong>Robin Room, Professor of Population Health & Chair of Social Research in Alcohol at University of Melbourne</strong></p>
<p>The report acknowledges that there were about 40 submissions to it on liquor, most opposing “any change that would restrict the ability of governments to set trading hours or planning and zoning rules in order to address the risk of harm from alcohol”. It says “it is certainly not the Panel’s view that the promotion of competition should always trump other legitimate public policy considerations”, but it nevertheless holds to its principle that “all [such] regulations must be assessed to determine whether there are other ways to achieve the desired policy objectives that do not restrict competition”. </p>
<p>The onus of proof that there’s no other way is thus placed on those arguing for a public health interest. </p>
<p>This is not good enough. We have lived through an era of substantial deregulation in alcohol licensing, in considerable part driven by competition policies. The result has been <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1753-6405.2010.00568.x/full">substantial increases in rates of harm from alcohol</a>, mostly in the form of increased “harm per litre” of alcohol. It is rates of health and social harms due to drinking that have gone up, even where the per-capita alcohol consumption has remained fairly stable. </p>
<p>There’s <a href="http://onlinelibrary.wiley.com/doi/10.1111/j.1360-0443.2010.03333.x/abstract">research evidence</a> that the <a href="http://www.ncbi.nlm.nih.gov/pubmed/21896074">increase in the numbers of places</a> where alcohol is sold (in communities which now have little power to resist new licenses), and the <a href="http://onlinelibrary.wiley.com/doi/10.1111/dar.12123/abstract">extension of opening times</a> far into the night, are both implicated in this increase in harm. The increase in licenses has also meant the implicit bargain between the government and alcohol sellers has been broken – a bargain whereby they were given limited protection from all-out competition in return for acting as an agent of the government in minimising harm. </p>
<p>In the hands of the Competition Policy Review, competition has become fetishised as a consideration that can trump all others in setting public policy on markets and professions. Market efficiency and unbounded consumer choice and availability may have economic and ideological value, but they should not given such supreme priority over non-economic considerations. As Keynes put it, economists “are the trustees, not of civilization, but of the possibility of civilization.”</p><img src="https://counter.theconversation.com/content/39582/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joe Dimasi is a former Commissioner and Senior Executive of the ACCC.</span></em></p><p class="fine-print"><em><span>Allan Fels has chaired or co-chaired major inquiries into executive pay, government integrity, parliamentary entitlements, the Access Privacy card (a kind of national identity card), community organisations, the taxi industry, insurance company pricing, and health evaluation programs. </span></em></p><p class="fine-print"><em><span>Graeme Samuel is currently Chairman of the Victorian Taxi Services Commission, Co-director of the Monash Business Policy Forum, and Independent Reviewer to advise the Victorian Government on economic regulation, governance and the efficient operation of the Victorian urban water sector.</span></em></p><p class="fine-print"><em><span>Robin Room has a core research grant from the Foundation for Alcohol Research & Education, and funding from the NHMRC and ARC for alcohol policy-related research. He is a member of the Australian Professional Society on Alcohol and Other Drugs (APSAD), the main national professional society in the field. The policy committee sent a submission commenting on the Harper Committee draft report, as did Professor Room in his own name.</span></em></p><p class="fine-print"><em><span>Bruce Baer Arnold and Ian McAuley 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>The removal of restrictions on retail trading hours, pharmacies and parallel imports, and a controversial “effects test” on existing misuse of market power rules are among the many recommendations contained…Joe Dimasi, Professorial Fellow, Department of Economics, Monash UniversityAllan Fels, Professorial Fellow, The University of MelbourneBruce Baer Arnold, Assistant Professor, School of Law, University of CanberraGraeme Samuel, Vice-Chancellor's Professorial Fellow, Monash UniversityIan McAuley, Lecturer, Public Sector Finance , University of CanberraRobin Room, Director, Centre for Alcohol Policy Research, Turning Point Alcohol & Drug Centre; Professor of Population Health & Chair of Social Research in Alcohol, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/217512014-01-08T02:13:36Z2014-01-08T02:13:36ZPrivatisation: economic nous beats partisan stoush<figure><img src="https://images.theconversation.com/files/38624/original/57qqk494-1389143544.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A proposal to sell off Australia Post has caused controversy. </span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Australians returning from holidays to work this week were met with headlines reading: “ACCC calls for big asset sell-off”. Australian Competition and Consumer Commission chief Rod Sims had reportedly suggested the federal government sell off both Medibank Private and Australia Post.</p>
<p>Later that day the ACCC issued a “<a href="http://www.accc.gov.au/media-release/clarification-of-accc-chairman%E2%80%99s-comments-in-the-australian-financial-review-6-January">clarification</a>”, stating that while Sims believed that the private sector could run commercial enterprises more efficiently than government, there had been “ no reference made to privatise any specific Commonwealth owned entity”.</p>
<p>That didn’t squash speculation, however. Former ACCC Commissioner Stephen King specifically called for Australia Post to be <a href="http://www.smh.com.au/federal-politics/accc-chairman-rod-sims-denies-urging-privatisation-of-australia-post-20140106-30dm9.html">sold</a>, and Radio National’s Breakfast Program on Tuesday ran a <a href="http://www.abc.net.au/radionational/programs/breakfast/should-australia-privatise-more-public-assets/5187724">debate</a> between Julie Novak, a Senior Fellow at the Institute of Public Affairs and ACTU president Ged Kearney, expanding the discussion into selling electricity assets and even the ABC and the SBS.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/38627/original/9m2mmts3-1389143794.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/38627/original/9m2mmts3-1389143794.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/38627/original/9m2mmts3-1389143794.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/38627/original/9m2mmts3-1389143794.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/38627/original/9m2mmts3-1389143794.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/38627/original/9m2mmts3-1389143794.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/38627/original/9m2mmts3-1389143794.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">Utilities have also been earmarked for privatisation.</span>
<span class="attribution"><span class="source">Power lines image from www.shutterstock.com</span></span>
</figcaption>
</figure>
<p>The debate around these issues has been partisan and emotive – advocates are either “for” or “against” privatisation, almost regardless of the circumstances.</p>
<p>On one side is the argument that businesses owned by government are generally less efficient than those owned by the private sector. With such a generalisation it’s easy to find examples to support one’s partisan view. Anecdotes on both sides were flowing freely in the Breakfast interview.</p>
<p>It is useful to study efficiency and to make comparisons, not only between the private and public sectors, but also between government entities performing comparable services. That task is well-handled by the Productivity Commission in its regular <a href="http://www.pc.gov.au/gsp">reviews</a> of government service provision and in its specific inquiries such as into private and public <a href="http://www.pc.gov.au/projects/study/hospitals">hospitals</a> (which found no discernible difference between the sectors).</p>
<p>These inquiries and other studies usually confirm economic theory about the complexity of making comparisons. “Efficiency” is not a single, easily-measured property. It has many dimensions, and what is efficient by one criterion often comes at the cost of efficiency by other criteria. For example an electricity utility with high supply reliability may have achieved this through over-investment in peak load infrastructure. </p>
<p>Governments are often left with the hard cases, such as services for which the private sector cannot make a profit (country mail deliveries), or which present too much uncertainty for risk-averse investors (disability insurance). And that’s before we get into the complex world of allocative efficiency. No matter how technically efficient a government or private business is in delivering a service, if those resources can be put to better use there is allocative waste. Police and customs may be very good at intercepting narcotics, but to reduce drug dependence it may be far better to allocate funding to public health measures.</p>
<p>Studies which reveal the complexity of measuring efficiency don’t support Sims’ categorical <a href="http://www.abc.net.au/news/2014-01-06/accc-chairman-sims-floats-privatisation-of-power-post/5185970">statement</a>: “If all you’re after is maximum efficiency then there’s no question that you’d have those assets owned by the private sector”. But many studies do reveal occasions where government enterprises can improve their performance. Common problems are poor labour productivity, either because of restrictive work practices and featherbedding, or because of under-capitalisation. </p>
<p>In many state-owned enterprises, particularly power and water utilities, under-capitalisation results from governments taking too much as dividends at the expense of retained earnings. And there is often poor governance and management when board and management appointments are used as forms of political patronage. (When people resist privatisation for employment reasons, it’s a pretty good sign of poor labour productivity.)</p>
<p>Such findings, however, do not establish a case for privatisation. Rather, they establish a case for reform. That’s what a large company does when it finds one of its divisions is operating inefficiently. Privatisation of government enterprises is generally a lazy and costly substitute for reform.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/38615/original/nd3q2fvr-1389141929.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/38615/original/nd3q2fvr-1389141929.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=389&fit=crop&dpr=1 600w, https://images.theconversation.com/files/38615/original/nd3q2fvr-1389141929.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=389&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/38615/original/nd3q2fvr-1389141929.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=389&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/38615/original/nd3q2fvr-1389141929.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=489&fit=crop&dpr=1 754w, https://images.theconversation.com/files/38615/original/nd3q2fvr-1389141929.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=489&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/38615/original/nd3q2fvr-1389141929.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=489&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Partisan conflict should not get in the way of economic principles.</span>
<span class="attribution"><span class="source">AAP</span></span>
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</figure>
<p>Decisions on what should be in public hands versus privately owned should be based on economic criteria rather than sweeping and untested generalisations about efficiency. Where private markets work well, bringing benefits associated with competition, there is a case for privatisation. Where private ownership does not bring such benefits – in other words where there is significant market failure – there is a case for public ownership or control. The clearest examples are those of natural monopoly, where the market can support only one supplier, but there are many other situations of market failure requiring strong intervention.</p>
<p>That’s conventional economic theory, but it is getting little airing. Rather than articulating that theory, Sims suggested that the only sound reason for government ownership is to achieve particular social objectives. Of government enterprises, he <a href="http://www.abc.net.au/news/2014-01-06/accc-chairman-sims-floats-privatisation-of-power-post/5185970">said</a>: “If you’re continuing to own them by government, then that’s because you’ve got some social objective to achieve”. In her <a href="http://www.abc.net.au/radionational/programs/breakfast/should-australia-privatise-more-public-assets/5187724">debate</a> with Novak, Kearney endorsed Sims’ “social benefit” justification.</p>
<p>That’s a vague and weak basis for public ownership, implying that we must bear the supposed intrinsic inefficiency of public ownership in order to achieve “social objectives”, whatever they may be.</p>
<p>The division between public and private ownership should based on well-established economic principles rather than the outcome of a partisan conflict or vague claims about “efficiency” and “social benefits”. We are already bearing the economic cost of inappropriate privatisations – toll roads, energy and water utilities, health insurance – where commercial incentives conflict with efficient resource allocation. </p>
<p>Are we letting a a partisan stoush displace good economics? Or is it that our politicians and commentators aren’t even aware of the economic principles which should guide the division between the private and public sectors?</p><img src="https://counter.theconversation.com/content/21751/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ian McAuley 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>Australians returning from holidays to work this week were met with headlines reading: “ACCC calls for big asset sell-off”. Australian Competition and Consumer Commission chief Rod Sims had reportedly…Ian McAuley, Lecturer, Public Sector Finance , University of CanberraLicensed as Creative Commons – attribution, no derivatives.