The 5th Biennial Pacific Rim
Computer Law Conference
Anti-trust in Cyberspace
23 February 2001
Sydney
Mr Ross Jones
Commissioner
Australian Competition and Consumer Commission
The rapid growth of the Internet and e-commerce has the potential to provide enormous benefits to business and consumers. The development of e-commerce is already generating a wide range of issues for the Australian Competition and Consumer Commission (ACCC). These issues relate to both the anti-competitive conduct provisions of Part IV of the Trade Practices Act and the Part V consumer protection provisions. Some of the issues are not much different to existing issues. For example, some B2B arrangements may be little more that collective buying arrangements and might be analysed as such in terms of their anti-competitive behaviour. Some consumer protection issues in the world of e-commerce and the Internet are nothing more than electronic versions of old scams such as pyramid selling.
However, some B2B and B2C arrangements generate a new set of issues for the ACCC. Some of these new arrangements are not in their final form at this stage but the ACCC has been requested to examine and comment on any potential anti-competitive consequences, especially in relation to B2B arrangements.
It may be useful to briefly describe two different arrangements that the ACCC has some familiarity with. Last year the ACCC met with the principals of CorProcure. It is a B2B supply hub involving 14 major Australian businesses including Telstra, BHP, Qantas, Coles Myer, ANZ, Amcor and Fosters.
CorProcure was described as a business to operate an open e-market on the Internet for the procurement of goods and services used in the day to day running of a business. Essentially it involved what were described as ‘indirect goods and services’ such as stationary, travel, utilities etc. CorProcure was not going to deal with goods and services which are key inputs into the output of any of its shareholders. Further, the shareholders of CorProcure were described as not being direct competitors in their core businesses.
A second arrangement the ACCC is aware of is Asiaportal. This is an airline and associated travel specific airline ticketing B2B arrangement between airlines in the Asian region. Its members include the major Australasian airlines Qantas, Ansett and Air New Zealand and a number of their Asian competitors. The arrangement also includes a B2C portal.
It is useful to talk briefly about the ACCC activities in the context of these two different types of B2B arrangements. It would seem that three different markets may be impacted on by B2B exchanges:
- the market for goods and services bought or sold over the exchange;
- the downstream markets where those goods and services are resold (either in their original form or as an input into some other product);and
- the market for B2B exchanges.
A number of the Part IV provisions of the Trade Practices Act (TPA) may be affected by these arrangements. For example, s45 of the TPA prohibits contracts, arrangements or understandings that may result in a substantial lessening of competition in a market. Another Part IV provision which may have relevance would be s46, relating to the misuse of market power. Section 47 of the Act covers exclusive dealing, an issue which might also have some relevance as might some of the provisions of s50 covering joint venture mergers
I note that the topic has the somewhat provocative title "Do the Regulators really understand technology". I think it is fair to say that regulators do not have a total grasp on the impact on the technology, but I seriously doubt that anyone else here has either. This therefore gives me sufficient confidence to blunder into a range of issues I have given some thought to, even if I don’t have a solution. My primary responsibility at the ACCC is mergers so I might begin by talking briefly about B2B, B2C and market definition.
- E-Commerce and market definition
An issue which I expect will be of relevance reasonably soon is whether or not
e-commerce constitutes a different market to traditional distribution activity. In some instances e-commerce may create new markets in the context of competition policy but in other instances it may be little more that a new sales channel which competes with traditional sales channels lying within the same market.
It is also possible that e-commerce could potentially widen geographic markets, as location becomes less relevant to trade between parties. This could in fact lead to important jurisdictional issues and increase the need for co-operation between competition authorities. Of course it is also possible that local characteristics as well as language, currency, delivery and taxation issues may limit the geographic dimension of the market. This may be likely in B2C markets, given that traders in B2B markets are likely to have a higher level of sophistication in international trade.
In some instances traditional outlets have tried to block the development of
e-marketplaces which is strong circumstantial evidence that these traders think they are in the same market. For example, Chrysler dealers in some US states tried to pressure Chrysler to limit the activities of an Internet distributor.
The impact of Internet pricing on traditional outlet pricing is also relevant in terms of marker definition. For example, the ACCC has observed that the recent entrants into Australia’s domestic aviation industry have offered heavily discounted prices on the Internet and the big two airlines responded, but only it seems also on tickets sold over the Internet.
- B2B Arrangements and network dominance
A significant issue for the ACCC is likely to be possible network dominance. First mover advantages in B2B and B2C markets may be considerable, especially in small market economies such as Australia. Take for example the hypothetical, and I emphasis it is hypothetical of a CorProcure type arrangement in this context. Consider the case where a group of large companies, not necessarily competitors, own and operate an exchange. These companies have market power sufficient to demand exclusive arrangements. For example, if all the participants in a major exchange agreed to buy only on that exchange, they may be able to force suppliers to deal with that exchange on an exclusive basis. This could give the exchange considerable power relative to later entrants.
If we expand on this theme it is possible to envisage a system whereby the owners of this ‘first’ exchange restrict access to buying through the exchange, to its original partners, none of whom directly compete with each other. But competitors are locked out from whatever purchasing benefits the exchange brings.
Now perhaps it is possible for others to develop a competing B2B arrangement. But if the members of the first B2B arrangement have forced exclusive dealing arrangements on suppliers and/or introduced expensive proprietary standards and/or patented interface designs, it may be extremely difficult for later B2B exchanges to be developed. In a small economy there may be too few competing suppliers downstream to enable other B2B hubs to achieve sufficient viable scale.
This is not to say that all incentives provided to deal through a particular B2B marketplace are anti-competitive. The ACCC will determine these on a case by case basis. The advantages of the B2B exchanges such as better price discovery mechanisms and lower transactions costs may outweigh competition concerns.
- B2B ownership
Another relevant matter is who owns the B2B exchanges. As I just noted, B2B exchanges owned or controlled by their major participants generate a different set of competition issues to independently owned B2B arrangements.
It is probable that in a comparatively small economy such as Australia, there may be benefits in participant ownership of an exchange. This may guarantee a volume necessary to attract investment and achieve economies of scope and scale.
However, I think it may be necessary for the ACCC to give serious thought to the issue of what critical mass is necessary for the viability of an exchange and whether time limits should be placed on restrictive measures considered necessary to guarantee throughput in the start-up phase. Extending further on this, I think that it may also be appropriate to give thought to whether a time limit should be placed on participant ownership. It may be desirable to encourage participant ownership in the initial development stages to support the necessary capital investment but beyond some point the risk of co-ordinated conduct from participants, especially those that involve arrangements between competitors may outweigh the benefits. Of course, in practice, it would be very difficult to agree in advance on an appropriate time limit for participant ownership.
- Information sharing in B2B arrangements
The issue of information sharing is a complex one. Lower cost, more rapid communication permits buyers to be better informed concerning available options. It allows greater price transparency. But such arrangements may facilitate practices which are not pro-competitive. The greater transparency may actually increase the incidence of co-ordinated behaviour and even collusive price fixing arrangements. It enables parties to this co-ordinated behaviour to more easily detect those players ‘cheating’ on the collusive arrangements in place and assists in the maintenance of a collusive discipline.
B2B exchanges could give participants the ability to more easily track changes in rivals’ costs plus actual and planned output levels. Some B2B exchanges already feature ‘chat rooms’ which may facilitate reaching agreement or at least some mutual understanding. It is also possible to design technology in a way that makes it very difficult for competition authorities to monitor or regulate.
I realise that my description of the competition issues sounds very negative. However, it is the job of the competition authority to understand the impact of the technology and it is not necessarily all positive.
But let me turn to a couple of B2B issues in the context of understanding technology. Here I think the regulator understands the technology better than some of the participants, particularly those consumers who become the victims of Internet scams.
Consumer Protection Issues
The Commission is already responding to a range of consumer protection problems involving e-commerce. It is rapidly building on its resources and expertise to discover on-line breaches of the Trade Practices Act, locating the business, gathering evidence before it can be altered, and enforcing the provisions in the Act as effectively as it does in the off-line environment. The Commission’s experience in on-line investigations is accumulating and developing in line with technology.
The major consumer protection issues associated with e-commerce and other use of the Internet include:
Scams – these can be old scams given new life by the characteristics of the Internet or, new technology-enabled conduct and problems of information asymmetries caused by both user ignorance of the medium and the medium's characteristics.
A major enforcement issue is that these scams can be set up quickly and do wide spread damage in a very short space of time – and can disappear just as quickly. Difficulties can arise in tracing the offenders and taking action before they disappear into Cyberspace.
There is a tendency for ‘scam’ operators not to target regions in which they are located. This means that the local authorities are less likely to be interested in assisting in investigations, and there is uncertainty as to whether the regions where the harm has occurred have jurisdiction to pursue matters. Traders can also maintain or move their operations, proceeds and other assets offshore, adversely impacting on available remedies.
International cooperation by regulatory agencies is vital, especially in cases where cross-jurisdictional issues arise.
An example of a current matter with the Commission is the Skybiz 2000 Scheme. Late last year the Commission instituted proceedings for alleged contraventions of s 57 (referral selling) and 61 (pyramid selling) of the Trade Practices Act 1974.
The Commission alleged that the members of Skybiz.Com.Inc attempted to induce other to become participants in the trading scheme, and to pay Skybiz.Com.Inc US$100 per website to obtain the prospect of participating in the scheme.
The Commission is seeking declarations from those involved in the pyramid selling scheme, injunctions, restraining further involvement and orders requiring the implementation of a trade practices compliance program.
In a recent Western Australian based investigation, the Commission obtained interim injunctions against Perth-based computer retailer Info4pc.com Pty Ltd, for allegedly advertising but not delivering very cheap computers, mainly on the Internet.
The injunction obtained by the Commission affords national protection to consumers and follows proceedings by the Western Australian Ministry of Fair Trading, which assisted in this action. Authorities in the United Kingdom and Canada have investigated similar schemes with direct links to Info4pc.com in Australia. The UK schemes closed their doors in October 2000 and the Canadian scheme in November 2000, leaving thousands of consumers out of pocket.
Product Safety — the availability of goods from international vendors that may be banned in Australia or subject to mandatory standards or other domestic regulation of supply eg prescription drugs is facilitated by e-commerce.
For example, recent interlocutory court orders against Mr David Zero Population Growth Hughes, trading as Crowded Planet, have restrained the supply of oral contraceptives to consumers within Australia.
There are a number of health risks involved in taking any pharmaceutical obtained over the Internet. In Australia, it is illegal to supply them without a prescription.
In addition to suppling a Schedule 4 pharmaceutical, Crowded Planet also made alleged false and misleading misrepresentations on its Internet site that the Commission had approved its business operations. The Commission does not give approval to the operations of individual business.
It is important that businesses trading on-line must do so within all aspects of the law.
International Internet Sweep Day
For a number of years, the Commission has been involved in coordinating the "International Internet Sweep Day" under the auspices of the International Marketing Supervisory Network (IMSN). World-wide sweep days were conducted in 1997, 1998 and 1999. The Commission coordinated these sweep days which involved about 70 consumer affairs enforcement agencies from 30 countries sweeping the Internet.
In 1997 the Sweep day targeted 'get rich quick' schemes. In 1998 the focus was on websites promoting 'miracle cures' and other potentially misleading health claims. Once suspicious sites were identified, the operators of those sites were sent an educational email message, outlining the fact that the activities they appeared to offer may be regulated in some countries, and referring them to the regulatory body in their country to obtain information on how to comply with the appropriate legislation.