Contents

Introduction. 1

A New Digital Competition Regime. 2

Designation. 3

Obligations and Exemptions 4

Enforcement and Compliance. 6

Other Implementation Considerations 7

Recommendations 8

Conclusion. 9

Endnotes 9

Introduction

Following the recommendations of the Australian Competition and Consumer Commission (ACCC), the Australian Treasury (Treasury) has outlined a new digital competition regime aiming to establish “ex ante upfront rules” for large digital platforms. The proposal paper “A New Digital Competition Regime” (Proposal Paper) provides justifications for the new approach and details a framework for platform designation, broad and service-specific obligations, and enforcement mechanisms.[1] The goals of the new regime include promoting lower prices, consumer choice, fair competition, transparency and opportunities to innovate for small businesses. The Treasury has invited stakeholder feedback on the proposal, including the scope of regulation, designation criteria, compliance obligations, and enforcement mechanisms.

The Information Technology and Innovation Foundation (ITIF) appreciates the opportunity to comment on the Proposal Paper from the standpoint of promoting innovation in Australia. ITIF is a nonprofit, nonpartisan public policy think tank based in Washington, D.C., committed to articulating and advancing pro-productivity, pro-innovation, and pro-technology public policy agendas around the world that spur growth, prosperity, and progress.

ITIF’s comment responds to the questions provided in the Proposal Paper. It broadly addresses the Australian government’s reasoning for the new digital competition regime and examines the risks of preemptive digital regulation, including regulatory overreach and chilling effects on innovation. It also analyzes the designation criteria, particularly the proposed qualitative and quantitative thresholds. Additionally, it assesses and evaluates the proposed broad and service-specific obligations from the standpoint of promoting innovation and consumer welfare. ITIF’s comment further identifies concerns related to the proposed international compliance regime and potential for structural remedies and monetary penalties. ITIF provides a number of recommendations to the Treasury for how it can support innovation and digital competition without heavy-handed ex-ante regulation. A brief conclusion follows.

A New Digital Competition Regime

Question 1: Are there any major implementation challenges associated with the proposed framework?

Ex-ante regulation faces two general problems: creating poor economic outcomes and regulatory capture. First, regulators very often lack the knowledge needed to correct market failures, especially in fast-moving industries, making ex-ante rules inefficient compared to ex-post enforcement. Ex-ante regulation also results in compliance costs that divert resources away from more productive activity, stifle dynamism, and ultimately get passed on to consumers. Indeed, even if ex-ante regulation generates short-term efficiencies, the cost of lost innovation may greatly outweigh any temporary gains. Second, ex-ante frameworks can incentivize regulatory capture, as firms may seek to shape regulation in their favor, resulting in a scheme that ultimately picks winners and losers rather than furthering the public interest.

Question 2: Is the proposed scope of digital platform services targeted appropriately? Are there any digital platform services that should be added or removed?

Regulatory intervention in an industry should be a response to market failure, which occurs when competitive forces fail to allocate resources efficiently, leading to consumer harm that cannot be corrected by market dynamics alone. However, the Proposal Paper does not sufficiently establish that such failures exist in Australia’s digital markets. Indeed, Australia’s digital markets generally appear to be thriving. For example, the tech sector has grown by 80 percent over the past five years, reaching a value of A$167 billion.[2] In 2021-22, digital activity increased by 8.6 percent, contributing 6.1 percent to the total economy.[3] Australia can also boast of strong venture capital activity, many notable unicorns, and key growth in specific sectors such as fintech, digital gaming, and data centers.[4] In fact, the digital games industry alone generated $226.5 million in revenue in 2021, a 22 percent increase from the previous year.[5] At bottom, the general absence of systemic digital market failures suggests that broad ex-ante regulation would be unwarranted and could disrupt the positive trajectory that currently characterizes Australia’s digital markets.

Question 3: Do you agree with the proposal that app marketplaces, ad tech services, and social media services should be prioritized as the first services to be investigated for designation under the framework?

App marketplaces, ad-tech services, and social media services should not be prioritized for investigation under the framework because there is no clear evidence of market failure in these sectors. Applications (app) markets are competitive, with multiple platforms offering developers distribution channels, including Apple’s App Store, Google Play, Samsung Galaxy Store, and other alternative marketplaces. Adtech markets are similarly generally competitive—publishers and advertisers use several ways to connect, such as through various ad exchanges and other tools, as well as by dealing directly. With respect to social media, while the Proposal Paper isolates Meta as a dominant platform, TikTok, Snapchat, and YouTube are rapidly gaining users and vigorously competing for users’ attention. Indeed, data accumulation and network effects do not guarantee lasting dominance, as evidenced by practices like multihoming in many industries.

Designation

Question 4: What are the benefits and risks of the various designation approaches taken or proposed internationally?

Two main approaches exist for digital competition regulation regarding the designation criteria of platforms: broad designation frameworks that capture a wide range of firms, including domestic players (e.g., Brazil’s Bill 2768/2022), and narrowly targeted models that focus on the largest firms, which are mostly U.S.-owned (e.g., the EU’s Digital Markets Act (DMA)).[6] Both have distinct risks: The former can stifle innovation and dynamism at home, while the latter can create a real risk of potential adverse diplomatic and geopolitical consequences as well as reduced investment and innovation by foreign firms.

Question 5: Would the proposed quantitative thresholds and qualitative factors appropriately target entities that are significant to Australian consumers, businesses and the economy? What other quantitative thresholds or qualitative factors should be considered to ensure they are adaptable to a variety of circumstances? How could any risks of over and under capture be mitigated?

Relying too heavily on quantitative thresholds overlooks that firms with even high revenues do not necessarily have dominance. By contrast, including too many qualitative factors that go beyond an objective assessment of market failure (e.g., important intermediary position) can create an unpredictable enforcement landscape. Indeed, including a number of subjective qualitative factors in the designation analysis could lead to arbitrary enforcement where regulators apply qualitative criteria unevenly, resulting in uncertainty for firms that may or may not be designated depending on unclear regulatory priorities.

Question 6: For quantitative thresholds, the proposed regime would draw on the threshold levels used by international regimes, adjusted to reflect the size of the Australian economy and population. Is this approach appropriate?

Adopting quantitative thresholds similar to those in the EU’s DMA and the UK’s DMCC, which are given as examples in the Proposal Paper and are likely to be used to target American firms, may result in adverse consequences that include responsive measures by the new Trump administration.[7] They also fail to take into account Australia’s unique characteristics. For instance, the EU’s Information and Communication Technology sector contributed approximately €718 billion to the economy, accounting for 5.5 percent of the EU’s gross value added, employing over 9 million individuals, representing nearly 5 percent of the EU workforce in 2022.[8] The UK’s digital sector contributed approximately £227 billion to its economy and supports over 2.6 million jobs in 2023.[9] In contrast, Australia’s technology industry contributed around $122 billion and employed about 935,000 individuals in the same year.[10] And of course, simply scaling down thresholds may not account for Australia’s unique market dynamics, which include a growing digital sector.

Question 7: Are there any circumstances where quantitative thresholds may be sufficient by themselves to inform a designation decision and if so, what circumstances would they be?

Quantitative thresholds alone are insufficient to justify a designation decision because revenue, user numbers, or market share do not automatically indicate market power. For example, a firm may have high revenues but face stiff competition from other larger firms. Moreover, even market dominance does not equal market failure, especially in high-tech industries driven by network effects and Schumpeterian competition—size and scale are a feature, not a bug, of competitive rivalry or “leapfrog” competition. As such, relying solely on numerical thresholds risks overinclusive regulation that targets firms that do not contribute to market failure.

Question 8: The proposed framework provides the relevant minister the ability to direct the ACCC to conduct designation investigations and the ACCC to also self-initiate designation investigations. On what basis should the ACCC be able to self-initiate investigations?

The designation process in the proposed framework, which allows ministers to direct the ACCC to conduct an investigation, exacerbates risks associated with regulatory capture that undermine efficiency and objectivity. Such ministerial discretion may lead to inconsistent enforcement driven by shifting political priorities rather than objective competition concerns. The ACCC investigations should be governed by clear criteria that focuses on concrete evidence of anticompetitive behavior and market failure, rather than broader political concerns or subjective concepts like fairness.

Question 9: Should the ACCC be required to publish a non-confidential summary of its designation investigation findings?

In general, transparency is critical to ensuring predictability in the designation process and safeguarding procedural due process. Publishing non-confidential summaries could bring clarity to businesses and help prevent regulatory overreaches.

Question 10: The digital competition regime proposes designation to last for up to 5 years. Is this time period appropriate?

The five-year designation period is excessive in fast-moving digital markets. Digital markets are highly dynamic, with competition emerging through innovation and shifting consumer preferences. While the regime aims to act faster than traditional antitrust investigations, it risks locking firms into regulatory obligations even if market conditions change significantly. In particular, a rigid five-year designation could impose unnecessary restrictions in markets where market failures have been corrected and firms no longer have any market power.

Obligations and Exemptions

Question 11: What are the costs, benefits, and risks of the proposed framework comprising both broad and service-specific obligations? How can any costs or risks be mitigated? How should broad and service-specific obligations interact?

The proposed framework would impose broad and service-specific obligations without sufficient flexibility, creating risks of inefficiency, overregulation, and harm to innovation.

By contemplating per se rules, whether broadly or on a service specific basis, the framework risks chilling procompetitive behavior. Certain business practices that the framework seeks to restrict—such as self-preferencing and tying—can enhance efficiency, reduce costs, and improve user experience. For example, while self-preferencing may be anticompetitive if it excludes rivals and harms consumer welfare, it can also drive product integration, innovation, and service quality.[11] Likewise, tying can be a procompetitive strategy that enhances security and ease of use for consumers.[12] Similarly, mandating interoperability across all services could discourage firms from investing in proprietary technologies that differentiate their offerings, ultimately reducing competition rather than enhancing it.[13]

Question 12: Are there any additional types of anti-competitive conduct common across different digital platform services the government should consider when drafting broad obligations?

The exclusionary practices typically targeted by digital regulation are generally procompetitive and beneficial to consumers. To be sure, regulatory approaches in other jurisdictions have targeted exclusionary practices not focused on in the proposed framework, such as bundling. However, this practice also often enhances competition by creating better-integrated services, improving security, and fostering economies of scope.

Question 13: For app marketplaces, ad tech services, and social media services, are there any additional types of anti-competitive conduct in the supplies of these services the government should consider when drafting service-specific obligations?

See responses to questions 11 and 12.

Question 14: Are there particular obligations or design features in similar regimes in international jurisdictions the government should consider including or not including in a regime in Australia?

Australia should not simply copy and paste digital competition regimes crafted abroad. Regulatory frameworks like the EU’s DMA or the UK’s DMCC were designed for different market conditions and competitive landscapes, and their one-size-fits-all approach will not necessarily serve Australia’s digital economy.

Question 15: What are the benefits and risks of various international approaches to exemptions (such as the EU’s Digital Markets Act and the UK’s Digital Markets, Competition, and Consumers Act)?

The DMA and DMCC take different approaches to regulating digital platforms, particularly in how to handle exemptions or defenses from conduct requirements. The DMA relies on general and per se prohibitions for designated gatekeepers, banning practices across digital industries such as self-preferencing or bundling without considering whether these behaviors benefit consumers. As discussed above, this approach assumes that certain business practices are inherently harmful and fails to account for the procompetitive justifications that exist for these forms of behavior, even when done by large firms. In contrast to the DMA, the DMCC relies on firm-specific codes of conduct rather than general blanket prohibitions, allowing firms to put forward procompetitive justifications for their behavior. While the latter will mitigate harm to innovation, company-specific codes of conduct risk creating uncertainty and the potential for disparate application that picks winners and losers.[14]

Question 16: For the grounds for exemption, would a broad ‘countervailing benefits’ exemptions mechanism with a high threshold be appropriate? What measures should there be to reduce the risk of vexatious applications?

Allowing procompetitive justifications—as in the DMCC—would help prevent false positives. In general, a countervailing benefits test should include factors evaluating pro-consumer benefits such as lower prices, better user experience, enhanced privacy, and security.

Question 17: Are there any potential obligations for which exemptions should not be available?

Per se bans are not appropriate for evaluating the type of exclusionary conduct that is typically the focus of digital regulatory regimes. Procompetitive justifications, or at least the potential for an exemption, should be open to all covered platforms that believe the conduct at issue can survive scrutiny on the basis of providing net benefits to consumer welfare and innovation.

Enforcement and Compliance

Question 18: What safeguards are required to ensure any information gathering powers for the proposed regime are used appropriately?

Any information-gathering powers under the proposed regime should be accompanied by strict confidentiality protections to prevent the misuse or unwarranted disclosure of commercially sensitive data. Businesses should have assurances that proprietary information, trade secrets, and commercially sensitive data will be safeguarded, as strong confidentiality measures encourage firms to be forthcoming with the information they provide, which ultimately enables more effective enforcement.[15]

Question 19: The proposed framework could include record keeping requirements for designated digital platforms to record and keep certain information in a standardised format. How could these requirements be scoped to limit regulatory burden? Would there be any public benefit of publishing some of these records?

Record-keeping requirements should be narrowly tailored to ensure compliance and avoid creating undue compliance burdens, such as requiring firms to make whole new databases that they do not maintain in the ordinary course. And, while publishing certain information may offer transparency benefits, proprietary and confidential business information should receive the highest possible protections from disclosure.

Question 20: The regime could include limited record keeping obligations for entities that meet specified global revenue thresholds but are not yet designated. How could this requirement be scoped to limit regulatory burden and impacted entities? Are there any risks of this approach and how could these be mitigated?

Imposing record-keeping obligations on firms not subject to the regime would create unnecessary compliance burdens that are untethered to any real benefits achieved through the regulation.

Question 21: What guidance or resources would be needed by stakeholders to clarify and assist compliance with the obligations?

In general, stakeholders should receive guidance that is as clear as possible as to which of their specific practices are unlawful and the remedial actions they must take to avoid liability.

Questions 22: Are increased monetary penalties and/or new specific non-monetary penalties required in the new digital competition regime? If so, why?

Increasing monetary or non-monetary penalties would likely be counterproductive and risk turning enforcement into revenue extraction. Punitive remedies will lead to overdeterrence, chill procompetitive behavior, and stifle entrepreneurialism, making firms hesitant to expand or develop new business models. Moreover, large monetary penalties will ultimately be passed to Australian consumers, leading to higher prices.

Question 23: Should the new digital competition regime provide for structural remedies similar to those available in overseas regimes? Alternatively, should the regime include a mechanism for the ACCC to require that, where a platform has implemented a structural remedy overseas under an equivalent international regime, the platform roll out that same remedy in Australia?

Imposing structural remedies similar to those available in overseas regimes (e.g., DMA)—or automatically applying foreign remedies to Australia—would be economically unjustified and harmful to competition. Forcibly restructuring firms ignores not just the benefits that accrue from scale but the highly integrated nature of the digital economy. Moreover, even if a structural remedy could hypothetically be justified in another jurisdiction, it may not at all make sense for Australia.

Question 24: Is the proposed compliance proposals regime an efficient and workable way of recognising platforms’ compliance with similar international regimes as compliance in Australia?

Automatically recognizing compliance with the strictest international regimes as appropriate for compliance in Australia would risk undermining Australia’s regulatory independence and importing harmful regulatory overreach. Specifically, it may encourage Australia to de facto adopt the most burdensome regulations promulgated abroad even if they go well beyond what is necessary to address the particular competition concerns in Australia. For example, ex-ante regimes like the DMA and DMCC were designed for their unique jurisdictions and perceptions about competitive harms in digital markets, and copying their standards without adaptation risks imposing unnecessary restrictions on businesses that do not pose significant competition concerns in Australia. However, allowing designated firms the option of putting forward in whole or in part remedies already utilized in other jurisdictions as sufficient to address the competition concerns in Australia could be a way to reduce compliance costs.

Other Implementation Considerations

Question 25: Should merits review be available for certain administrative decisions under this regime (such as exemption decisions)? What would be the associated risks, and can these risks be mitigated?

Yes. As a general matter, checks and balances from independent judicial bodies are critical to preventing harmful actions and abuses of discretion by regulatory bodies.

Question 26: Would it be appropriate for government to recover the costs of administering the regime from industry?

No. This proposed regime is already likely to levy heavy compliance costs on designated companies, and imposing additional costs would only exacerbate regulatory burdens. Recovering administrative costs from industry would also have the adverse effect of incentivizing the ACCC to engage in overenforcement and in effect subsidize false positives, rather than judiciously using its resources to address the most serious anticompetitive behavior.

Question 27: Are any additional measures required to ensure that the framework remains fit-for-purpose to address harms in fast-moving and dynamic digital platform markets?

Given the fast-moving nature of digital markets, rigid ex-ante rules risk quickly becoming obsolete and stifling the innovation they may seek to foster. Instead, Australia should rely on enforcing its existing ex-post competition laws to address concerns about anticompetitive behavior in digital markets. And, to the extent its current ex-post regime falls short, Australia should consider adjustments that might help fine-tune its ex-post legal standards and procedures before resorting to ex-ante regulation.

Question 28: Noting the benefits of Australia adopting the approach taken in international jurisdictions, where might a customised approach for Australia be warranted and why?

There is no global one-size-fits-all approach to digital market governance. Specifically, ex-ante regulation, such as with the EU and UK models, is not the only viable path. Other jurisdictions, such as the United States, Taiwan, and Singapore, have opted for more flexible, innovation-friendly approaches, including the enforcement of existing antitrust laws. Still, other countries, like Canada, are focusing on amending ex-post enforcement frameworks. Rather than conceive of ex-ante digital regulation as an international best practice, Australia should adopt the approach that reflects its unique market conditions and is best suited to driving innovation and improving consumer welfare.

Question 29: Is the proposed approach for Australia to be a ‘fast follower’ of international regimes appropriate?

The “fast follower” approach risks prematurely adopting regulations that may later prove ineffective or harmful to competition and innovation. Indeed, consumers in the EU have already seen welfare losses as a result of the DMA. For example, Google was forced to disintegrate Maps from Google Search, which had long appeared below the search bar. These changes not only have harmed consumers by making them engage in more clicks to get the information they want, but have also resulted in reduced traffic to small businesses and hotels while increasing traffic to larger intermediaries—the very sort of picking winners and losers that comes at the expense of consumers and the public interest.[16] Similarly, other companies like Apple have had to delay the rollout new AI solutions as a result of the DMA.[17]

Recommendations

For these reasons, ITIF offers the following recommendations to the Treasury: 

▪ Apply a wait-and-see approach. Australia should not rush to implement an untested ex-ante digital competition framework. Ex-ante regulation risks stifling the innovation that drives economic growth and may ultimately be used to pick winners and losers rather than serve the public interest.

▪ Use existing tools first. All of the behaviors targeted by the proposed regime—such as self-preferencing, transparency, and data use—can already be addressed through Australia’s existing antitrust laws. And, if existing ex-post tools are ultimately found to be unable to correct the perceived digital market failures, reforms that focus on closing specific gaps in case-by-case enforcement are preferable to ex-ante regulation.

▪ Stick with evidence-based antitrust enforcement and allow procompetitive justifications. Blanket bans on behavior like self-preferencing and tying, fail to distinguish between procompetitive and anticompetitive conduct, leading to false positives that penalize consumer-friendly business practices.

▪ Avoid structural remedies and excessive penalties. Punitive fines and breakups risk turning competition regulation into a tool for revenue extraction and reorganizing industries rather than the promotion of innovation and consumer welfare. Instead of seeking to punish firms or create competition that it believes should exist, the ACCC should focus on remedies that prevent anticompetitive behavior and deter future violations.

▪ Maintain regulatory independence, do not embrace the Brussels Effect. Australia should not default to the most restrictive global compliance regimes and instead independently craft its own digital competition policies. Moreover, key economies such as the U.S., Singapore, and Taiwan have avoided imposing comprehensive digital market laws and instead opted for flexible, pro-innovation approaches that do not involve ex-ante regulation.

Conclusion

By deciding not to pursue digital competition regulation, Australia can avoid the problems that are already materializing as a result of ex-ante regimes like the EU’s DMA and instead follow the U.S., Taiwan, and Singapore down a path that allows the digital revolution to continue to develop and bring benefits to both Australia and its consumers. Indeed, amidst a rising China seeking global techno-economic dominance, policies that continue to foster innovation in the West and among its core allies have never been more important. However, heavy-handed regulation by Australia that places significant burdens on America’s leading technology firms would send the wrong message about the relationship between the United States and its closest allies in the Indo-Pacific. And, with the new Trump administration, such regulations are increasingly likely to be met with reciprocal action that results in harms that far exceed any hypothetical benefits that digital regulation may be expected to achieve.

Thank you for your consideration.

Endnotes