The ACCC is debating whether current competition laws need to be amended to deal with the deep pockets of Facebook and Google and their tendency to buy smaller companies which one day could rival their own businesses.

This is a part of the consumer watchdog’s current digital platform inquiry into Facebook and Google.

ACCC Chair Rod Sims spoke during the 2019 Competition Law Conference over the weekend, telling attendees there is a current discussion underway concerning how the consumer watchdog should respond to acquisitions by big digital platforms of start-ups that, while small, may evolve into significant competitors.

“In our view, Google and Facebook have commercial incentives to strategically acquire nascent firms even if the chance of these firms ultimately posing a competitive threat is small,” Sims said.

Sims used the example of Facebook buying Instagram as it eliminated the threat of a substantial potential competitor.

Over the past 12 years, Facebook has acquired 66 companies for a value of US$23 billion. Between the period 2004 to 2014, Google acquired 145 companies for a value of US$23 billion.

One question being posed was whether the forward-looking test for proposed mergers, which questioned if a transaction would substantially lessen competition, remained adequate in these circumstances.

The challenges involved for competition authorities in dealing with such issues should not be understated, Sims said.

“Some have argued that preventing large digital platforms acquiring small start-ups interferes with the incentives to innovate in the first instance.

“This perspective appears to be based on a view that large digital platforms are uniquely placed to develop and monetise the innovations of small start-ups.”

Sims claims merger law should focus on whether the acquisition interferes with the competitive process and recognise that the process of competition for the market is not the same as the process of competition within the market.

“If the prospect that the target will become an effective competitor is small, but the potential increase in competition and consumer welfare is large, greater weight should be put on the potential for competition,” he said.

At the end of last year, the ACCC investigated whether these technology giants breached the Australian consumer and competition laws. The consumer watchdog claimed both US companies have significant market power raising concerns about the negative impact on the platforms.

In December 2017, the federal government directed the ACCC to launch an investigation into Facebook and Google’s effects on media and advertising.

The inquiry is looking into the effect that digital search engines, social media platforms and other digital content aggregation platforms are having on competition in media and advertising services markets.

The ACCC will provide its views on these issues in its final report on the digital platform inquiry, which will be provided to the Treasurer on June 30.

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