What’s happened?

The ACCC is back in ‘world-leading’ territory since its 2019 Digital Platforms Inquiry first spearheaded global scrutiny of digital platforms in relation to competition and consumer issues. On 8 March 2023, the ACCC released its 7th Issues Paper in the Digital Platform Services Inquiry (DPSI), commencing the only market study by a regulator internationally that is “solely focussed on the expanding digital platform ecosystems of increasing interrelated products and services as an exacerbating source of competitive or consumer harm”.

What are “expanding digital platform ecosystems”?

The ACCC considers the term ‘digital platform ecosystem’ to “encompass the wide range of interrelated products and services - whether interrelated through technical interoperability or by commercial practices such as bundling - offered by a single or related group of companies”.

The ACCC will therefore closely examine “the extensive web of interconnected products” from digital platform service providers, and how they impact competition and consumer issues.

In particular, the ACCC will examine how digital platforms’ expansion strategies, including through organic growth, affiliations / partnerships with other companies, investments and strategic acquisitions, are potentially exacerbating these issues. The ACCC will also explore smart home devices and consumer cloud storage solutions as examples of digital platforms’ expansion into other products and services which interrelate within their ecosystems.

What is the ACCC’s competition focus?

In its 7th DPSI Issues Paper, the ACCC is focused on the impact of digital platforms’ expansion strategies on competition, including in relation to:

• the role of data in digital platforms’ expansion strategies and how data may be used to enhance other services within its ecosystem or expand into new markets;
• the incentive or ability for digital platforms to leverage their existing market power across their ecosystem to prevent or inhibit competition (e.g. by restricting interoperability, making their services incompatible or providing a less seamless experience with services outside their own ecosystem); and
• other types of conduct that may contribute to ‘lock-in’ effects or create switching costs for consumers including bundling, tying and self-preferencing conduct as well as pre-installation / default arrangements. Although, the ACCC does acknowledge that these practices do not always harm competition and can be pro-competitive.

The ACCC has previously considered similar competition issues in its 5th DPSI Interim Report and has made recommendations to address them including via mandatory codes of conduct. For further insights see our in-depth analysis.

What is the ACCC’s consumer focus?

The ACCC acknowledges that complementary services / devices which interoperate effectively within a digital ecosystem can provide important benefits for consumers but that the expansion of digital ecosystems may also increase opportunities and incentives to engage in harmful practices. The concerns raised in the Issues Paper largely reflect the ACCC’s findings in the 5th DPSI Interim Report, including in relation to:

• Consumer lock-in: the concept that as consumers invest more of their time and money into a particular digital ecosystem, they become ‘locked-in’ and find it increasingly difficult to switch to an alternative service. The ACCC considers that digital platforms may be exacerbating this issue through information asymmetries, a lack of transparency and the use of dark patterns (e.g. design choices which make it difficult for consumers to cancel subscriptions).
• Excessive or undisclosed data collection: the ACCC is concerned that by expanding their ecosystems, digital platforms have greater opportunities to collect and use valuable personal data that may not be available to potential rivals. Also, where digital platforms’ terms of use are provided on a ‘take-it-or-leave-it’ basis, consumers may be more likely to accept undesirable terms around data, especially where they feel locked-in or constrained by a lack of alternatives.
• Other consumer harms (e.g. dark patterns): the ACCC indicates that it may continue to consider other consumer harms it has previously identified, including digital platforms’ use of dark patterns, such as hidden recurring fees and other unfair practices in their dealings with consumers and small businesses.

Many of these issues have been raised by the ACCC before in its proposal for an economy-wide prohibition on unfair trading practices. It will be interesting to see Treasury’s response to the ACCC’s proposed reforms and whether any further guidance is provided on what exactly constitutes unfair trading practices.

While we wait, see our recent panel discussion on the concept of ‘fairness’ with ACCC Chair Cass-Gottlieb where she outlines her reasons for supporting for an unfair trading practices prohibition.

What’s next?

The ACCC invites written submissions by 5 April 2023. Following this consultation process, the 7th DPSI Interim Report is due to be submitted to the Treasurer on 30 September 2023 and will be published soon after.

Reminder

What is the DPSI and how has it progressed so far?

The ACCC’s DPSI is a five-year inquiry (2020-2025) into markets for the supply of digital platform services, with an interim report released every 6 months. The Australian Government directed the ACCC to conduct the DPSI on 10 February 2020 following a recommendation in the ACCC’s 2019 Digital Platforms Inquiry.

The ACCC’s 1st DPSI Interim Report was released in September 2020 and focused on private messaging and, to a lesser extent, social media and search services. The 2nd DPSI Interim Report focused on app marketplaces, the 3rd DPSI Interim Report examined search defaults and choice screens, 4th DPSI Interim Report’s focus was general online retail marketplaces, and the 6th DPSI Interim Report is taking a more in-depth look at social media services, with the Interim Report scheduled to be submitted to Treasurer by 31 March 2023.

The 5th DPSI Interim Report mentioned above found that Australia’s competition and consumer protection laws on their own are not sufficient to address the digital platform-related concerns it identified. To address these insufficiencies, the Interim Report recommended ex ante regulation of:

• “Designated Digital Platforms” through mandatory service-specific codes;
• targeted obligations to address specific issues including self-preferencing, interoperability, transparency exclusivity, data barriers to competition, unfair dealings, impediments to consumer switching and price parity clauses, and
• consumer protection measures to prevent and remove scams, harmful apps and fake reviews, with dispute resolution and complaint escalation processes.