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Digital M&A: A Flat World or a Region-Specific Issue?

 |  December 22, 2021

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Below, we have provided the full transcript of our panel discussion Digital M&A: A Flat World or a Region-Specific Issue?. Read below to see the timely discussion where a panel of experts deepened the discussion regarding this topic, and how it specifically relates to South Korea.

Luke WOODWARD Speaker BW


Well, welcome and good day to Dynamic Competition in Dynamic Markets: A Path Forward in the Asia Pacific Region. This is the fourth session in this program. There’s been three prior sessions covering developments across India, Taiwan, Korea, Japan, Southeast Asia—and I’m sure I’m missing some places—which have had fantastic panelists and moderators on them.

Today we’re going to focus more into developments in Australia, and we’ve got a great lineup for that, and I’ll introduce them in a moment. Our particular focus today will be around developments and the administration of the merger regime in Australia, and some policy reform initiatives that have been put on the table by the Australian Competition and Consumer Commission. Over the course of today, I think we should explore a range of kind of critical issues that are not just critical in Australia, but that we are seeing play out around the world.

Firstly, what are the sources of concern here in terms of digital transactions? Are digital platforms serial acquirers in a way that increases or entrenches market power? Are there examples of acquisitions which should not have been allowed to proceed? Are digital sector specific merger rules necessary or justified? And we’ll come back to some specific proposals from the ACCC. In that regard, are there good learnings from international proposals? And we’ll have the benefit to get some comparative assessment here, particularly from Joel, in particular, thinking about the UK proposals for bespoke merger control for acquisitions by digital platforms, and what may be the unintended consequences of strict merger controls on innovation. We’ll have the ability to get some real insight into the impact and the importance of innovation within a holistic competition assessment.

So let me introduce myself. I’m Luke Woodward, I’m a competition partner at Gilbert & Tobin in Australia. Then to our panelists, and we’ve got a great panel to explore these issues.

Firstly, if I could just introduce Tom Leuner. Tom is the Executive General Manager for Mergers, Exemptions and Digital. So he’s in exactly the right spot for this discussion. Tom there’s been no issue in kind of merger regulation control and policy development in this country in the last 20 years that Tom has been centrally involved in, but more important and particularly relevant to this discussion is that the ACCC and Tom are very well connected with the international policy debate around mergers. So I think we’ll get both very Australian specific reflections from Tom that will then connect into kind of where the broader debate is going.

Our next panelist is Jacqui Downes. Jacqui Downes is a Senior Competition Partner from Allens Linklater in Sydney, and she’s the national head of their practice in Australia. Jacqui has extensive experience in Competition Law, but particular experience in media and digital markets that I think allows her to bring a deep insight to this issue. And Jacqui will be able to give us, and to the broader audience, a perspective on policy developments and practical administration in Australia.

Then we welcome Joel Bamford. Joel, I think has just recently joined Fingleton Associates, but maybe a week or so ago, Joel was basically the head of mergers at the CMA where he was not just responsible for the case oversight, but actually policy initiatives as well. We’ll really particularly be turning to Joel to get some kind of comparative assessments of developments here in Australia.

And then lastly, and definitely not least, is Professor David Teece from the Haas Business School at Berkeley. I think we’ll turn to David in this discussion to really make sure that we’re thinking about these issues in the right way, that we’re carefully thinking about what’s important, particularly the challenges around driving innovation into the policy discussions as a central part of the discussion, not just as some hopeful outworking from competition policy, but a critical part to actually the analysis, and that will draw very much on David’s work in the 1990s and earlier in relation to the dynamic capabilities of firms and dynamic competition. And, David, there’s probably no time, I think, in the evolution of competition policy, where that work and those insights is probably more important.

I think we’ve got an excellent panel today. I thought it would be useful, just given the breadth of the audience, to maybe just set a little bit of the scene of what’s going on here in Australia in terms of just overview of competition law, administration, and policy development. So it’s a big question, but I’m going to pass over to you, Jacqui, to just set the scene and then we’ll dive in to some of the merger specific issues. So, Jacqui, if I could just pass to you.

Jacqueline DOWNES Speaker BW

Jacqueline DOWNES:

Thanks very much, Luke. And thank you for inviting me to speak at this webinar.

Australia has been at the forefront right at the very beginning of development in competition law and policy looking at digital issues. This started way back in 2017, when the ACCC kicked off a two year digital platform inquiry, a very broad ranging examination of the issues that are facing digital platforms in terms of competition law, and in particular, the impact on media in Australia. This was really one of the first start regulators globally to start a real in-depth look at these issues and certainly kick-started a wave of investigations and inquiries by regulators all around the world over the last four years.

The original report, the Digital Platform Report, or the DPI report, focused on the fact that digital search engines and social media platforms, as digital content aggregators, as well having a media and advertising markets. The report made a series of recommendations for reform, some of which have already been enacted, including the introduction of the news media bargaining code, really the world’s first, which has been largely successful. Even though it’s technically doesn’t apply to any of the platforms yet, the threat of that media bargaining code has been successful in achieving some fairly negotiated commercial agreements between the digital platforms and a number of news media businesses. Other proposals that were put forward at the time are in the process of further consultation, including amendments to privacy laws. The final report did introduce, or recommend, a number of other measures that haven’t yet been introduced, and these include changes to the merger laws to incorporate additional merger factors that target nascent acquisitions and advanced notification requirements by digital platforms. This has now been wrapped up in the merger proposals that the ACCC, the more broad-ranging merger proposals we’ll come to that the ACCC has recently announced.

Following that initial two year inquiry, the government directed the ACCC to undertake a broader five-year inquiry into digital markets, with reports delivered every six months. And this allows the ACCC to do a bit more of a deep dive into various segments of digital platforms. And there’ve been three interim reports in the digital platform service inquiry. First, there was one in relation to online private messaging services, search engines, and social media. The second was into app marketplaces, and the third in web browsers and search engines, including the effectiveness of choice screens. And the ACCC is due to deliver its forth interim report on online retail marketplaces in March next year.

The ACCC was also directed, following its initial inquiry, to take a targeted inquiry into digital advertising services, or ad tech. The final report in this inquiry was handed down in September, 2021, with the ACCC, again, making findings that digital platforms had market power, and that various measures would be needed to address market power issues in relation to those digital platforms, particularly in relation to issues around data and self-preferencing.

The ACCC has now announced that it will be conducting a much broader review of whether there’s a need for specific digital platform regulation throughout the course of next year. So each of the reports sets out a range of findings regarding market power and the conduct of various digital platforms and the resulting competition and consumer issues. It stated that these issues have been broadly similar in nature.

Other than the media bargaining code, I think the ACCC’s view is that many of these issues around self-preferencing, tying and bundling strategies, and strong network effects are broad across a range of platforms, a range of issues, including app stores and ad tech, use of social media, choice screens. The ACCC has indicated that this broader regulation may be necessary.

In terms of mergers, Rod Sims has also recently kicked off the debate and as part of the broader suite of merger reform,. He also proposed to introduce a digital platform-specific regime, and restated the recommendations that he made back in 2019 to introduce new merger factors, to address acquisitions of nascent competitors, and a mandatory notification regime. It’s also suggested, whilst there’s no data yet, there might be a specific test for our digital platforms in the acquisition of nascent competitors.

Outside of the ACCC inquiries, there’s also been a number of significant core proceedings commenced against digital platforms. One of the most significant cases here, as well as in the US, has been now brought by Epic Games against Apple, which will go to trial in 2022. In this case that the guidance it’s alleged that Apple misused its market power by removing the Epic’s app from the App Store after it offered consumers an alternative payment method. A number of other private litigations have been commenced against Facebook and Google as well, alleging misuse of market power. The ACCC has also taken action against Google and Facebook in relation to consumer law issues; for making false or misleading representations to consumers. So, you can see, it’s certainly been a very busy time in the digital platform space over the last four years. I’ll hand it back to you, Luke.


Thanks very much, Jacqui.

I’m going to turn to you, Tom, just to give us a bit of an oversight of actually an overview of how mergers administration has been operating to date, and then we’ll talk really around some of those challenges and some of the transactions that you’ve been looking at, and then we’ll come back to kind of the policy reform space.

Just to note, I think that the Commission has actually looked at a number of digital transactions of some varying significance. Obviously there’s Google’s acquisition of Fitbit, that’s ongoing. There’s the media acquisition of the CRM supplier customer, that’s not been opposed. Salesforce’s acquisition of Slack Technologies, and Microsoft Corps’ acquisition of Neurons, also not opposed. And not wanting to put you on the spot, but presumably the Commission is considering, at least in some manner or other, Amazon’s acquisition of MGM Studios.

There’s kind of an active engagement with digital transactions. Tom, if I could just ask you how well do you think that’s going? How well do you think the ACCC can assess and analyze those transactions and the competition issues there? Do you think the issues you’ve been looking at are just global issues, or they’re Australia specific ones, or are there even kind of regional trends or issues that we should be thinking about? Over to you to, Tom.

Tom LEUNER Speaker BW


Thank you, Luke. First of all, thank you to CPI for hosting this event. I should just say at the outset that any views I express today are my own and not necessarily those of the ACCC.

The first point, and reflecting what you said, Luke, we are definitely looking at digital mergers much, much more closely than we ever used to. We did look at them from time to time and there was nothing stopping for us from looking at them more closely in the past, but we’ve certainly ramped up that focus on these matters and that mostly reflects the work during the digital platforms inquiry, which Jacqui mentioned before, which commenced in 2017 and finalized in 2019. That really highlighted the ACCC concerns about the passion of mergers over the years, and that we really needed to focus on these much more. These days we’re much more attuned to a variety of effects that might come about from a digital merger, so things like the impact of the acquisition of data and how that can cement positions of market power. We’re much more focused on network effects, the tipping of markets, but also just the fact that the future competitive constraint on a large digital platform or a large digital player that holds market power might be coming from someone who’s only in a related market at the moment and not necessarily competing with that player right now. This goes to the arguments about killer acquisitions, which I’m sure we’ve all heard a lot about.

The other effect that we’re really focusing on a lot is innovation; what is the impact of innovation on the market? Innovation by the target? Even innovation also by the acquirer. For example, you see the acquirer buying this business rather than innovating it. Now the problem with all of these issues is that they are extremely hard to predict. This isn’t like a market where you’ve got two manufacturers of widgets and you run your upwards pricing pressure model and determine the price impact and therefore determine whether there’s a substantial, less than in competition. The issues are much, much trickier, but I do feel like the ACCC has put itself in as best, as a good place as it can to analyze these issues, and partly it relates to that work on digital platforms that Jacqui took us through. We’ve got a large team now focused on digital platforms issues, and they’re producing those six monthly reports that Jacqui mentioned, and those staff embed themselves in the merger assessment team. And it’s not a fluke that the digital platforms branch is in the same division as the mergers branch at the ACCC. We work very closely together, and I think that connection really helps us analyze these digital issues. But the other really important factor that helps us analyze these deals is cooperation between agencies worldwide. Without that I think it would be a lot harder.

I’ve worked in merger regulation now on and off for around 20 years, and I’ve never seen cooperation between agencies to be as strong as it is now, but there’s also a much greater need for it right now. And that’s because, as we all know, these are very much global deals, and often the issues are common around the world. So we are often having weekly or even more frequent meetings between the merger assessment teams across the different jurisdictions. We have debates between the economists. We share data, we share documents, and I’ve seen, I’m not going to mention matters, but I’ve seen different regulators convince other regulators to adjust their approach. By all means, the ACCC has adjusted its approach in reaction to this coordination that happens between jurisdictions. So that’s a critical tool of the ACCC.

Luke, you asked about whether this is a local issue, regional issue, or global issue? Sometimes they’re local issues. Obviously, not every player is present in every market. There might be a situation where there’s a four to three merger around the world, but one of those players isn’t present in Australia, so in Australia, it’s a three to two merger.

I think we all know that in digital markets, the issues tend to be much more global. Although the ACCC works extremely closely with its peers in the regional area, it is worth highlighting that often the dynamics are quite different in some of our neighboring countries. So if you look at China, for example, the digital sector is entirely different to Australia. Even if you look at countries like Japan and South Korea, the dominant position of Google, isn’t the same as perhaps the position in Australia, so they might take a different approach on, for example, acquisitions by Google, because of that. So often some of the closest coordination can come with countries that are not necessarily in our region, but perhaps have a similar economy in a similar presence of the digital platforms. In particular, in recent years we’ve worked very closely with the UK, Europe, and US, and also New Zealand and other countries in our region as well.

Hopefully that gives you the snapshot you after, Luke, and back to you. Thanks.


Thanks very much, Tom. It does, and it’s a really nice segue to come across to Joel.

And, Joel, to just get your kind of comparative assessment about some of those issues that Tom was talking about. And how, to the extent that you kind of see those resonating in your experiences at the CMA. Joel?

Joel BAMFORD Speaker BW


Thanks, Luke. Excellent Tom. Thank you very much to the CPI for having me today.

I should clarify; I do still work with the CMA, and I look to for a few months, but I will be moving on. So while the opinions I express today, are my own rather than the CMA’s or Fingleton.

I think I wanted to pick up on a couple of points. The first is actually that Jacqui really nicely set out a journey that the ACCC has been on looking at how digital markets work, thinking about how you consider the different types of competition how that might occur. Then Tom talked through the merger space, and I think it’s fair to say we’ve been on a similar journey within the UK.

Back in March, 2019, we had a report from Jason Ferman called Unlocking Digital Competition. That was a report commissioned by our treasury, and it had a particular piece focusing on mergers. One of its points was around under enforcement in digital mergers, and also the types of theories of harm that you might look at. This speaks very much to what Tom has been talking about rather than that kind of narrow focus on current or kind of short-term future competition or a narrow focus on an individual market, actually looking further out into the future, thinking in the ways that digital markets interact in the way that market power can be used to essentially work within different markets and bring them together.

Following that, the CMA actually asked an economic consultancy, Leah, to do an ex post review of some of its digital mergers. Some are familiar to many commentators, things like Facebook, Instagram. And although that report didn’t focus on whether the answer that the CMA come with was correct, it did focus on the methods of investigation. Actually, it’s essentially the CMA being quite narrow in its focus, it had been narrow in the types of information the group requested. It’d be narrow in thinking about the different theories of harms and the way competition it might manifest itself in the future.

Then you go through a kind of a journey of cases, and these were cases which were done by the CMA, but also done by, for example, the USFTC or the USDOJ. We had the Illumina / PacBio, which is about DNA sequencing. The tech market. It’s got a very large incumbent and PacBio is a new company bringing in a very different technology, which the parties argue quite strongly didn’t compete, and were complements. It’s a familiar theme we hear in digital markets; we don’t compete with each other, we’re just complementary products, and actually we’re going to expand the use of those complementary products. We found a concern in that case, as did the FTC, and that started to evolutionize the thinking around internal documents and how companies think about their competitors and the other players in their market.

You move forward to April, 2020, and you look at Saber / Farelogix. Sabre is one of the big airline booking systems, there’s really kind of three players and Farelogix was this nascent competitor. It was coming in, it was offering something different, something new, and it was really kind of fragmenting the market into different, more innovative services. There we went to block that merger, the DOJ went to court and unfortunately lost, but we were appealed only on our jurisdiction, in the end, and not on our substantive analysis. So you came back to kind of research, both case research and general research.

You’ve got new cases coming through, and we’ve got a couple kind of outside of the merger-sphere we had our CMA’s digital advertising market study in June, 2020. We had a digital markets task force, which reported to the government on the way that you might think about digital regulation in December, 2020, and then this culminated from the mergers’ perspective and the task force putting through new policy ideas, which we’ll probably talk about later, but it also in the actual kind of day to day assessment of mergers relate to a new updated merger assessment guidelines being published in the UK in March, 2021. Those guidelines have a much stronger focus on dynamic competition, the loss of potential competition, and two-sided or multi-sided markets.

One of the points around there that I wanted to pick up is when we’re doing that assessment of dynamic competition, often people focus on the likelihood of entry, the likelihood of the event occurring, when it’s going to occur in the future. Just that end point. It’s really about, when are we going to get to that end point? What does that end point mean? One of the things we brought out in our merger assessment guidelines was the process of rivalry to get to the endpoint is just as important as the end point that you’re getting to. That rivalry along the way, that innovation, that kind of tit for tat, that driving each other to produce new products, is some of the most important competition that we can see in digital markets. Often, that kind of driving each other comes from those small firms that are bringing in something new that the big firms are fearing they’re seeing it as something that might come through later on. They might have much more wide ranging outcome, and so that competition is really driving the competition we see in those digital markets. The challenge we have with those, obviously, is uncertainty. Uncertainty on how that is going to relate to each other, and uncertainty on the final outcome.

The CMA has a two types of tests. Phase one, we look at a realistic prospect of a substantial lessening of competition. And phase two, we looked at a balance of probabilities, more likely than not that the competition concern will occur. But, we’ve been very clear in our merger assessment guidelines that uncertainty doesn’t lead to clearance. We can’t just say, well, the world is uncertain. Therefore we must default to clearance. There’s always uncertainty about the outcome of an investment, the outcome of innovation efforts absent the merger, and including whether the investment is being made by merger firms would ultimately result in products or services being made available to customers. I come back to the outcome and the process to get to that outcome. But the uncertainty about the outcome of a dynamic competitive process, doesn’t preclude the CMA from assessing the impact of the merger on that dynamic process. A process of dynamic competition can increase the likelihood of new innovations or products being made available and therefore has economic value in the present, not just in the future.


Well, thank you very much, Joel. I think that’s going to tie in neatly into David.

But, David, if I could just frame that; I’ve been listening to Joel and to Tom, and I think the themes that are coming out of that are that transactions involving complementarity, potentially nascent, but not always nascent, uncertain overlap, and significant uncertainty. We get the theme of innovation. I’m not sure whether or not actually the innovation is driving the uncertainty, but that’s a kind of a critical part to that. So, I guess a two-part question, looking at the world as it is now, how well do you think the regulators are dealing with those issues and how do you think we should be thinking about those issues? David.

David TEECE Speaker BW

David TEECE:

I think the short answer is they’re not doing very well. The good news is they’re starting to look at these issues. The problem is they don’t have the right tools to look at the issues.

So let me back up. First of all, the fact that you’re talking about dynamic competition is a great delight to me because I’ve been saying for about 30 years that competition policy should focus primarily on dynamic competition, because it’s innovation which drives competition and most fiercest way, the rest of it is weak tea. But for 30 years, the agencies have been barking up the wrong tree and focusing on the wrong things, in my view. So, on one hand, I’m awfully delighted that now dynamic competition is coming front and center.

But, as Tom pointed out, once you get into this world of deep uncertainty, you have to recognize that things are very difficult to predict. And that’s being augmented by the fact that my profession, the economics profession, has been sitting on its hands for at least three decades around the concept of potential competition. Nothing has been written of any moment about potential competition for maybe even 50 years. We have Sylos Labini’s models of entry, conditions and so forth, but because we economists have turned a blind eye to the literature on capabilities, we don’t know anything. We can’t say much at all about potential competition. We’re just learning the language of business models, despite the fact there’s a literature out there that it’s almost three decades old on business models. So what I’m afraid of is the immense hubris that somehow rather, after sitting on one’s hands for 20 years, I got to come up to speed real fast and get it right in a world of deep uncertainty.

I’m fully in favor of focusing on these issues, and I think when you do focus on them, first of all, you have to recognize the following: these big tech companies compete like hell. The word monopoly gets thrown around, but the old notion of monopoly is that it’s an easy life. Well, I can pretty much assure you, it is not an easy life even if you’re a big tech firm, if you’re not very active in competing with each other, you’re going to lose the game. There’s no inexorable advantage anymore, and the quality of management and systems matters immensely.

First of all, we can’t even think about competition in the standard relevant market context, at least not easily. I think we need to be thinking in terms of ecosystem competition, and ecosystem to ecosystem competition, and we only have primitive understandings of these things. So we’re handicapped in that regard, but I do believe that progress is being made. I think that a lot more work has to be done before one can declare with any confidence that this more interventionist approach is going to do more good than it is going to do harm.

So that’s sort of my opening initial point here, which is great that we’re digging into this, but the problem is not as much with the law as I see it, and there’s great effort in Australia, I think, to change the law, but I’d change economics first. Change economics first. There’s a lot more flexibility inside the law than there is inside economic modeling right now, or at least traditional ways to think about things.

Also, it’s not just about platforms. Joel, I’m delighted that everyone is focusing on platforms, but most of them platforms tends to be blindsided or not paying sufficient attention to innovation. And it’s where economists go, because it’s something they know about. It’s not because it’s necessarily what they should be highlighting.

So in my view, we should school up, understand the innovation process, understand how organizations build capabilities. Only then will we be able to say whether blocking a merger, like with Giphy or even with Instagram or WhatsApp, it’s only then that we’ll be able to talk intelligently about those things. So I guess I’m not saying slow down, but I am saying be incredibly careful and be provisional about everything and put innovation first. When you put innovation first, the agencies have being saying, “Oh, innovation matters,” but they only see competition driving innovation, they don’t see the causation running the other way, which is innovation drives competition as assuredly, as competition drives innovation. So long as we have these half-assed approaches, we’re going to get it wrong, more likely than not. So that’s my deep concern.


Well, thanks very much, David. I think they’re important observations.

To move the discussion on now, I would like to turn to Tom to outline what the ACCC’s merger proposals are. I think there’s some significant challenges in the observations of David to thinking about merger administration and merger reform. So if in casting your remarks around your proposals, you think there’s an opportunity to kind of address some of the observations of David, please do so. Anyway, Tom, if you could just take us through what the ACCC is proposing in terms of merger reform. Over to you, Tom.


Thank you, Luke.

What the ACCC has done is started to base on merger reform in Australia. Ultimately, the direction Australia takes on this will be up to the government and the treasury will advise the government as the policy agency, but we’ve put forward our own proposals, and those proposals relate to both process and the law. Currently we think both the process and the law and how the test is applied in the federal court are biased towards clearance. This is the problem we’re trying to fix.

Many of the audience might be aware that currently Australia’s merger approval system is entirely voluntary. There’s no obligation to notify the ACCC of any merger and any merger can proceed at any time. The only way the ACCC can stop that is to go to the federal court and seek an injunction. Although we’ve built up what we call the informal merger review over the years, it’s still in a sense voluntary, and people can proceed with the merger or threaten to proceed at any time.

We’re proposing a new system, which would be a formal, mandatory and suspensory notification system, so that parties would have to come to us with their merger proposals, and then we would assess them through a process that would be quite similar to various processes overseas. However, we are really keen to retain the benefits of what is currently called the pre-assessment system. You might be aware that over 90% of mergers in Australia are cleared through a pre-assessment approach at the moment, where we have a quick look at it, usually most just on the papers. Sometimes we make a few telephone calls, ask for a little bit of information. Usually within a matter of a couple of weeks, we clear those matters, and that applies to over 90% of them. We want to retain that benefit, that quick and efficient clearance system.

So for the mergers that are above the threshold under the new system, we would have a notification exemption process. You can apply for an exemption from having to notify. Now, the other key element of our proposals in relation to process are that appeals would be to the Australian Competition Tribunal. For those of you who are not aware, in Australia we have a tribunal that is made up of a judge, an economist, and a business person. We think they’re the best appeal body if the merger parties want to appeal a decision of the ACCC.

In summary, just some process, what we’re really doing is moving away from what is a very pure enforcement model for merger regulation where the ACCC has to dis-enforce that section of the act that says you can’t buy something if there’s a substantial lessening in competition towards an administrative decision making model. It would be quite a fundamental change to the Australian regime.

We’re also proposing changes to the merger test, and this is to deal with the challenges we’ve had with proving future events, to the required evidentiary standard before the federal court. Many of you will have heard about the court losses the ACCC has had on merger matters. One of the changes is that we’re proposing to define the word likely. At the moment, to be a breach it has to be a likely substantial lessening in competition, and we’re proposing to change or put in a definition for that so that it means a possibility that is not remote.

The other change we’re proposing is that there would be a deeming provision. So for acquisitions that entrench a position as substantial market power, they would be deemed to substantially less in competition. The thinking behind this is to try and bring the focus more towards the structural conditions for competition and take it away from having to prove the precise effects in terms of a substantial lessening of competition.

So there, at a higher level, are the main changes we’re proposing, and those would apply to all mergers if the ACCC got its way.

In relation to digital mergers, in essence, what we’ve done with digital mergers is say that we think there’s almost a bigger problem there that needs a separate solution, and we’ve pushed that issue into next year. We think there’s all kinds of issues that I mentioned before in relation to buying nascent competitors, the lack of notification of mergers and issues like this. Next year, we’re going to put out papers that put forward a potentially a new regime for merger tests in relation to digital mergers that might try and address these issues. There’ll be an issues paper around March, and then our concluded report with our recommendations in September next year.

This paper is part of and is tied into a broader look at the whole digital platform sector to assess where the new rules are required more broadly. As Jacqui mentioned at the start, the ACCC has been doing these six-monthly reports and did the ad tech report and the digital platforms inquiry a couple of years ago. Building on all of that work, where we have seen issues with market power and consumer harms as well, we’re going to assess whether we think new rules are needed to address those market power and consumer harm issues. We’re going to look at that merger idea, idea for digital specific merger rules in the context of that broader look at potential digital platform regulation.

I’ll just go quickly to David’s points before. I think, David, you were saying that it’s too early to sort of take a more interventionalist approach with mergers, but if we look at that decade from 2010 to 2020, the five main digital companies acquired over 500 companies during that period. Not a single one was opposed by an antitrust regulator, as I understand it. In my view, we actually need to move more quickly to really get our head around these issues and look at them closely. I can see there’s a range of views you can have, and maybe there’s this possibility of over enforcement, but my real concern is under enforcement. Thank you.


Thanks, Tom. I’m sure there’s something there for David to come back to, but Joel, I think again I’ll just pass to you to get your kind of comparative perspective from the same. I know the ACCC and CMA have been kind of working closely around merger reform issues. Over to you, Joel.


Thanks, Luke. I previously worked in New Zealand, and I’ve seen the Australian system up close and personal, shall we say, and Tom and I have discussed this over many years through the International Competition Network, which is a fantastic forum for the exchange of ideas in the way of doing things across agencies.

The UK system, it’s a voluntary administrative model, so it has the voluntary nature which Tom has discussed. But, when the CMA was born from the merger of two competition agencies into one, merged into a monopoly, the rules around the CMA’s ability to hold a company separate during the review were strengthened.

Those are enforceable ways. We fined Facebook last month, 50 million UK pounds for a breach of those rules during the Giphy case. They are there and they are particularly important in digital markets because we know the pace of change, and we know that when companies come together and all of the interactions and interweavings that occur, it becomes very difficult if you do have a concern at the end of a case to actually be able to unscramble the eggs. That regime for us, our interim measures, our initial enforcement orders, our interim orders, are very important, and they’re a strong corollary of having a voluntary system where companies are allowed to complete during investigation.

The other part of our processes is, as I said earlier, we have a phase one and a phase two, and they’re separate legal tests with separate decision makers.

The phase one is a decision maker such as myself, so a member of the staff team who would decide on whether there is a realistic prospect of a substantial lessening of competition. If a concern is found, that case will be referred to an in-depth phase two investigation. That phase two will be decided by a panel of individuals who are independent of the CMA and independent of the government. They may have a competition law, competition economics, business, or other regulatory function background. There are generally somewhere between three to five individuals who make the decision at the end of the day, and they decide that on a balance of probabilities, or more likely than not, a test, as I discussed earlier.

We have an administrative model with different decision makers at phase one and phase two. So there’s a very strong set of independence for that phase two decision making body and that checks and balances and the lack of confirmation bias that you would get if you necessarily have the same individuals in that separation. We then have a Competition Appeals Tribunal, much to what Tom was talking about earlier. We can be appealed to those within four weeks of their final decision, but that appeal is on a judicial review standard; it’s not a full merit review. We’re not going back into court as such as you would do if you’d be in US or other agencies to go through all the details of the cases. Just whether the CMA was being flawed in a way it’s applied its process in the legal tests.

Again, we’ve had a number of appeals over the years. We’ve had cases where we have had parts of those cases were remitted to us. We’ve obviously had both successes as well, but that has been a strong counterpoint to the CMA in the last five years.

A couple of points I want to focus on. Luke, you’re very kind to forward me Gilbert & Tobin’s review of the ACCC’s piece that they’ve put forward. Having seen a number of the commentaries that came out at the time when Tom and Rob and others put forward the proposals, one of the key discussions, and I’ve seen this myself is in court cases, the reliance on business individuals’ testimony and the force of that testimony, and I have to say some of the things that I’ve read at least have been relatively concerning, and they’re concerning from an experience perspective.

The CMA has looked at a number of cases over the years. As you would expect, merging parties are highly incentivized to get their deal through. They’ve very good sets of advisors, as I’m sure they do in Australia. They put the strongest case that they can forward, as they should. But sometimes what we’ve heard around, for example, firms are flailing or failing, or just not going to succeed without this investment from this large incumbent or that idea that these are going to compete going forwards in that new innovation is going to come. That’s just fundamentally flawed. Some of those, I talked about two cases earlier and they actually quite nicely highlight this.

In Illumina / PacBio, PacBio was a small firm, and made a very strong case that without the purchase from Illumina, they would essentially go bust and they wouldn’t be able to develop. The acquisition price was 1.2 billion. That was back in, as I said, 2019, 2020. Their market cap right now is 4.7 billion. It seems a kind of a long way from a firm that’s essentially on its last leg.

The other point around that was, we had an interaction around what it would be, what would be the outcome if Illumina bought PacBio for the rest of the market? How would it affect others? We’ve talked about killer acquisitions, but there’s also a wealth of literature out on what is described as kills zones around firms and kills zones around technologies when they’re purchased by large incumbents.

In that case, there was a UK firm called Oxford Nanopore, which made strong representations on the merger. They too have thrived in the last couple of years, and their market cap is now at 5.8 billion. You can see that incredible growth within that market. We’re not talking here about platforms, and hopefully we’re not being half-assed in our approach, looking at the innovation that occurs here either, but we’ve seen the outcome there that actually by blocking that merger, we’ve seen the market thrive. This is a market which has been used extensively in the battle against COVID and that next generation sequencing that we’re seeing really come through.

The second one that I wanted to highlight was around Farelogix and Sabre. So at the time, and I’m going to use a couple of quotes here, it comes back to the idea of business people putting forward their precise views about what will happen in the future. We put forward that Farelogix was an innovator in a particular type of merchandising product, and that Sabre would need to respond to that innovation. And they would need to take that forward within the next five years. I’m going to quote from a piece of advocacy that came into us as a submission, and it said that, “The CMA expectation that absent transaction Sabre would develop a credible merchandising solution within the next three to five years and would become a uniquely strong competitor to Farelogix and Amadeus in merchandising is entirely fantastical and fundamentally flawed.”

That’s in February, 2020. After the deal was blocked, Farelogix was purchased by a private equity firm. They continue to thrive now. On an earnings call, the Sabre CEO, the same CEO that signed off that submission said the other piece of the innovation framework.

Again, this really does go into what we’re doing on the merchandising side. We’ll be able to share more with this, but this is essentially a Farelogix replacement and what was taking place there. We’ve gone from fundamentally flawed that entry could occur in three to five years to, and that was November, 2020, to within 12 months we are building a replacement because, unfortunately the Farelogix merger had been blocked. It’s just a highlight of some of those, shall we say, inconsistencies between the perception at the time and the outcome going forward. I think it means that, at least from my side, we really need to get into the evidence behind that. There’s been a huge concentration on valuation models, internal documents, and I think those are very probative in terms of your evidence based going forward, and the kind of advocacy based pieces from business testimony maybe have to be seen in a slightly different light.


Thanks, Joel. There’s quite a bit in that as well. There being just two things to kind of call out. I thought the decision-making framework in the CMA and the independence built in at different stages is quite interesting. I’ll just make one observation, which is that, in those difficult cases, when you’re in the facts, I just agree with you that’s a good policy basis to start sort of redesigning our merger regime.

I’ll leave you with one question: I think we all have kind of anecdotal experiences, but one needs to be a bit careful about policy reform would be an overall observation.

What I think I’ll do now is, Jacqui, I’ll just ask you to make some comments about the ACCC’s merger reform case and how well you think that’s made, and then, David, I’ll bring it back again to you to get some observations around this merger reform developments and whether we’re thinking about that also in the right way. So, Jacqui, if I could just go to you first.


Thanks very much, Luke. I think it’s fair to say that I don’t believe the case for merger reform or the type of merger reform that the ACCC has put forward has been made out. I certainly appreciate some of the challenges in the digital platform context, and I’ll get to that in a moment, but in terms of the sort of broader issues of merger reform, which would apply to all businesses companies doing business in Australia and not just platforms, the Australian regime really does work well, and it has worked well for many, many years now.

The cases that Tom referred to the ACCC has lost in court have been a few in number, only half a dozen. By the ACCC’s own admission, many of those were at the margins in terms of, kind of testing the boundaries of the law, not clear cut cases which were blocked. The ACCC blocks a number of cases that don’t go anywhere near court. I feel I should say that the ACCC is a very vigorous enforcer and the Australian merger regime works well. The vast majority of mergers are notified to the ACCC. There may be a couple of anecdotal examples where that hasn’t happened or where mergers have completed prior to the ACCC finishing its review, but in the vast number of cases, parties are well aware that the ACCC is a vigorous enforcer. They do notify the ACCC and they do wait for the ACCC’s decision before pressing on with the merger. In those few cases, if that doesn’t happen, the ACCC does have powers to go to court and take injunctions and divestitures as well.

I also strongly believe that the court is the right place to properly test all the evidence, not the tribunal. Judges in our federal court are highly skilled in assessing evidence. Those concerns that Joel has raised as well as Tom around executives and what may or may not be believed, that can be put obviously to executives and judges are skilled at assessing evidence on both sides; the ACCC’s evidence and also the evidence of the merger parties.

In terms of the substantive test, our test is consistent with tests around the world; likely substantial lessening of competition. This has a long history of jurisprudence and is consistent with the overseas position. I have a strong concern about the change to the threshold for likely. I think this is way out of step with overseas approaches and really will tip the balance way in favor of blocking mergers and many mergers which should not be blocked in a healthy economy are likely to be blocked.

In terms of the sort of digital provisions, we haven’t seen a lot of the details yet as to what’s been proposed there. We know there’s some potential changes of merger factors, and I personally don’t have a particular concern about adding in some factors to make it clear that the court should consider the aggregation of data and the fact that this might be a nascent competitor. I think, though, if there are to be changes to the substantive tests for digital platforms, that causes more concern.

If all these merger reforms get up, there will then be three tests for mergers, which would make the Australian regime probably the most complicated regime in the world. There would be the substantial lessening of competition test, the deeming provision in the sort of digital platform test, a minefield for lawyers, but not so great for business and the economy.

And, Luke, in terms of David’s comments, if I can make a comment there, I thought I was going to disagree with David, but then it turns out, I think now we’re on the same page. Again, I think our merger processes are equipped to deal with digital platform reform, digital platform mergers. I accept that they raised complex questions and there are some evidentiary issues, but they are largely traditional questions around vertical, horizontal, conglomerate mergers, and I think the ACCC, and other regulators around the world today, have dealt with them very well.

I think some recent examples we’ve had in Australia with Salesforce and Slack acquisition, Measure and Customer, Microsoft and Nuance are examples. The ACCC took a hard look at some potential vertical and horizontal issues and cleared those mergers. And then we had other examples, for example, the Google Fitbit decision where the ACCC took a different view to the EU on the viability of undertakings, and also was looking at Meta Giphy, which is obviously being strongly opposed in the UK. I think there’s work to do, I agree. There’s education and learning to do and perhaps the economics can assist us, David, in understanding these mergers, but I don’t think it requires any change to the law.


Thanks very much, Jacqui.

David, I’ll turn to you with the last word I think, but you should give us a full, a sort of the full perspective on those observations. Some things I think would be particularly interesting to hear from what we have is a proposal to clearly reform the merger regime to address issues around uncertainty, so we can expect that a reformed merger regime would be applying and leading to blocking more transactions than now. That seems to be the essence of the proposal.

Then we have a proposal, or at least contemplation, for a sectoral specific regime for the digital sector. I’d be interested in your observations overall about the need for that in light of kind of your comment, that the issue is not so much the law, but the economics. Also, if we are moving into a policy reform space, as Tom was rightly pointing out, this is the ACCC calling out these issues, but ultimately there’ll be Treasury and other people who are doing, will have to take these issues forward. If we’re moving into that policy reform space, what are the kind of the key things that you think we should be really paying attention in that policy reform space? So, David, if I could just pass it to you.


Oh, well, thank you. These are all very interesting and important comments.

Tom, to begin with your first observation that we let too many mergers through, so therefore we’re going to right the wrong by maybe being too strict going forward. That really doesn’t make any sense to me. We should obviously correct what the flaws are if they’re really flaws, but to go from pillar to post is not good economics, as far as I’m concerned.

I think the real criteria is that you mentioned that we’ve got to move quickly. There has to be at least some reasonable emerging consensus in the scholarly literature if you’re going to get good policy, otherwise you’re going to have a very ad hoc system that’s unlikely to be evidence-based and is unlikely to be palatable in the longer term and could hurt not just innovation in Australia, but innovation worldwide. So there are a knock-on effects there as well.

Now, Joel quite rightly pointed out that well. Sometimes companies put forward advocacy positions that are not well balanced, and I know that occurs and I think there should be some accountability for that. If a company has a reputation of coming forward and overclaiming and the evidence builds, then that should be a part of the reputational damage. You should raise the bar a little bit higher, at least informally, against such companies. So the remedy is not to assume that whatever the company claims or whatever it is put forward is not fundamentally correct.

But let’s not just dwell on this issue. The elephant in the room here is that the enforcement agencies need a reasonable theory of potential competition. If they’re going to assess whether a merger is going to essentially nip in the bud, a potential competitor. Let’s be honest. There is no theory of potential competition in economics that’s of any use, so what’s happening is agencies are, in an ad hoc fashion, pitching together doing their best. Well, that’s not good enough. I know that economics professionals let you down, but I think it does speak to the need to focus on a number of things that agencies haven’t focused on in the past.

One is organizational capabilities. There’s a field called organizational economics, so it’s not like it’s a huge leap to get from market analysis to organizational analysis. As part of organizational analysis, you’ve got to get really, really sharp around business models and the viability of business models. This is going to require that the agencies actually take on some of the skillset that a venture capitalist has.

Now, the very fact that I’m saying that speaks to the difficulties and also the uncertainties that are here, and it should lead to a dialing back in hubris, I think. That you can actually get this stuff right all the time. I’m willing to forgive mistakes, both type one and type two mistakes here, because of deep uncertainty. To aim for precision is going to lead to regulation on top of regulation and probably lead to actually harming innovation in competition.

My plea here is for a number of things. One, let’s focus on a different set of criteria rather than the consumer welfare criteria. Let’s, as a proxy, use the merger: will it likely enhance or detract from the innovation in the ecosystem because it’s the health of the ecosystem, and in the long run it’s going to deliver benefits to consumers. So point one is focus on ecosystems.

Point two, put innovation first.

Point three, take a longer term view.

Point four is build a robust understanding of organizational capabilities, because otherwise you do not bring any apparatus other than your intuition to the business of merger assessment, if the issue is, are you buying a potential competitor? The other thing I think to bear in mind is to recognize that this is international; the actions of any individual agency have implications elsewhere. We didn’t talk much about big data, but there is some benefit from aggregating data, and there’s actually benefits, not just the consumer, but it enables AI systems to be tuned and to be better. There are global implications to all of this. The Western democracies need to stay ahead in AI, otherwise, there are certain existential threats.

I think competition policy has to begin to connect to industrial policy, technology policy, certainly questions around privacy have to also be taken into account. You need a more holistic approach. Certainly, China has a holistic approach to this stuff. Australia doesn’t seem to. The United States doesn’t seem to. We’re at the point where, I think, we’ve got to look with a wider lens at these issues. If we don’t, then I’m afraid not just for innovation, I’m afraid for not just the loss of innovation, I’m afraid of the loss of even criteria and values of even greater weight.

That’s my plea. Put innovation first, but recognize that innovation is a primary driver of competition. Recognize also that these big tech companies are spending more and more every year on R&D. If you look at where innovation is taking place and where R&D is being spent, these large companies are the primary driver, at least in the United States, for the increases in research and development expenditures. I think we really have to take a macro perspective and a micro perspective at the same time, if we’re going to have a chance of improving things rather than hurting them.


Thanks very much, David. I think that’s a good place to leave this discussion for now. We know that it’s going to continue on next year, that it’s a critical discussion. I think to put it within that broader context, I think is important. We’re not just talking about one particular transaction being approved or blocked. We need to think about the broader implications of our overall merger reform system, and I know the ACCC is absolutely doing that. They are definitely right to put these issues on the table, but having a broader discussion around that and having kind of more reflection and thoughts from different perspectives, I think is going to get us to a better place.

I really think that it’s been a wonderful discussion. I’d like to thank you, Tom, for taking us through the ACCC thinking. And Joel for an excellent sort of comparative assessments. Some real insights to hear. And thank you very much, Jacqui. It’s always great to be in these fora with you and to get the depth of your insights in Australia.

I think we could probably all on this panel say, in particular to you, David, I think this has been, an environment in which critical insights that you put on to the public agenda 30 years ago. I really at the fore now, and it’s been great to get your perspective on that. So I’d like to thank you all, and I’d like to thank CPI and I’ll bring this live session to a close. Thank you.