In a move that has sparked significant debate among economists and policy experts, the Australian government is considering implementing sweeping new competition regulations targeting digital platforms. These proposed "ex ante" laws would outright ban certain business practices for selected tech companies, raising concerns about unintended consequences for innovation and productivity.
The Problem with Blanket Bans
According to Adam Triggs, partner at economics advisory firm Mandala, the fundamental issue with these proposed regulations lies in their blanket approach. Ex ante regulations prohibit conduct outright, unlike "ex post" regulations which only intervene when harm can be proven. While ex ante rules make sense for clearly harmful practices like cartel behavior, most business conduct requires case-by-case assessment.
"These things are not necessarily anti-competitive so we risk throwing out the good with the bad," Triggs warns. The regulations would target specific digital platform services chosen by the government, covering practices like self-preferencing, product tying and bundling, interoperability requirements, and measures that might impede consumer switching.
Five Critical Flaws in the Proposed Approach
The proposed regulations face multiple significant challenges that could undermine their effectiveness and create unintended negative consequences for the Australian economy.
First, they risk prohibiting pro-competitive behavior. Product tying, for instance, often enables businesses to offer customer discounts. Loyalty programs might reduce switching but also provide valued rewards. Both are legitimate competitive tools that benefit consumers.
Second, the regulations ignore important trade-offs. Mandating interoperability for app stores might increase competition but could compromise security and privacy protections that consumers currently enjoy.
Third, they fail to account for rapid market dynamics. Tech markets evolve at breathtaking speed. Regulators who worried about Netflix's market dominance a decade ago now face a landscape crowded with streaming competitors. Predicting competition problems in such fluid environments has proven notoriously difficult.
Fourth, practical implementation poses major challenges. Detecting self-preferencing in online platforms requires understanding complex, commercially sensitive algorithms - a task that would demand massive expansion of regulator capabilities and staff.
Finally, the timing appears contradictory to other government priorities. Treasurer Jim Chalmers recently concluded an economic reform roundtable highlighting that excessive regulation constrains productivity and living standards growth.
A Better Path Forward for Digital Regulation
Rather than implementing sweeping ex ante regulations, Triggs suggests Australia should allow recently reformed misuse of market power provisions to demonstrate their effectiveness. The recent Federal Court decision where Epic Games prevailed against Apple and Google shows these existing laws already cover digital platforms adequately.
If court processes are too slow, the solution lies in investing in faster judicial decisions rather than creating entirely new regulatory frameworks. Evidence-based decision making must remain the foundation for balancing productivity concerns with necessary digital regulation across competition, privacy, intellectual property, and online safety.
As countries worldwide explore regulatory simplification to promote innovation, Australia's proposed ex ante regulations represent what Triggs describes as "a solution in search of a problem" - one that could potentially hamstring the nation's most productive sector during a critical period for economic growth.
