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ACCC releases final report of digital advertising services investigation and calls for more regulation.
The Australian Competition and Consumer Commission (ACCC) has published the Final report for its investigation of the markets for the provision of advertising technology services (advertising technology) and advertising agency services.
Ad technology services facilitate complex automated transactions for the sale and purchase of digital signage advertisements on websites or advertisements, resulting in the display of the advertisements to customers. Unlike its interim report, the final report focuses on Google, which it says is the only ad technology provider with the scale and scope to create competition or market efficiency concerns in the industry.
The ACCC will provide further details on how the recommendations of the final report could be implemented in its broader report expected in September 2022.
Why does ACCC say there is a competition problem?
The ad technology industry exhibits a number of institutional characteristics that could lead to a lack of competition in the industry. All of these characteristics are problems familiar to those working in industries with platform markets, but they are exacerbated in this industry due to another characteristic – that of vertical integration.
A platform market is characterized by the existence of indirect network effects connecting two or more parties through a platform internalizing these feedback effects. We see these institutional features in many markets, including, for example, those payment systems which, at the turn of the century, were subject to extensive regulation following a lengthy ACCC investigation. and the Reserve Bank of Australia.
The investigation of the advertising technology industry was held because the ACCC states that the industry “has high barriers to entry and expansion such as those resulting from network effects, cost savings. ‘scale and range advantages’ and that the industry is’ dominated by one or two vertically integrated companies. (p.15)
What does ACCC attribute these industry characteristics to? The following table presents the main structural features of concern to ACCC.
| The problem | Reference (page) | The description |
|---|---|---|
| Unique SEO | 56, 57, 59, 63, 73, 74, 98 and 100 | The convenience and operational efficiency offered by the integrated service providers in the advertising technology industry have led to the prevalence of single hosting. The benefits of single hosting usually outweigh those of multi-hosting when a single hosting provider has a substantial market share at all levels of the supply chain. |
| High switching costs | 51, 57, 63 and 77 | The ACCC notes (p57) that changing publishers in the advertising technology industry is a “complex, disruptive, time consuming and costly process”. This further strengthens the position of a dominant supplier. Advertisers and publishers cannot move freely, which prevents the emergence of competing suppliers. |
| Network effects | 15, 190 | Network effects occur when a product or service gains in value as more and more people use it. An indirect network effect occurs when an increase in the use of a product or network results in an increase in the value of a complementary product or network on the other side of the network. |
| Vertical integration | Chapter 4 | The vertical integration of a supplier throughout the ad technology supply chain (in some cases the entire supply chain) exacerbates these other problems and can lead to conflicts of interest, exploitative and self-preference behaviors, knowledge asymmetries and transparency issues that can prove to be anti-competitive behavior. |
Why does ACCC say new remedies are needed?
The final report contains a comprehensive and interesting analysis of each of these institutional characteristics. He argues that these are issues that cannot be resolved through the usual legal remedies, due to the type and extent of concerns raised in the ad technology industry and the emphasis on Very specific violations and the retrospective nature of legal remedies do not address the systemic competition concerns that it identifies.
This is, of course, a familiar theme to regulators who did not take action (starting with something outside of legal action) early enough to prevent some of these characteristics from appearing. institutional. No explanation is given as to why some of these very specific violations weren’t reported earlier, nor why such action would not be at least a step towards curing what is described as a cancerous industrial structure. Commonly, as is the case here, the regulator is asking for more regulatory powers and suggesting that they (the ACCC) should be the holder of those powers.
What remedies are available?
In addition to the ACCC’s calls on Google to impose self-regulatory measures (whose effectiveness testing is always the first step in designing a good regulatory system), the ACCC offers the following remedies.
| Remedy | Reference (page) | The description |
|---|---|---|
| No anti-competitive grouping | 16, 131, 138, 139 | A ban on the bundling or tied selling of anti-competitive services. |
| Access | 16, 138, 139 | Obligations to provide non-discriminatory or equivalent access to advertising technology services. |
| Rules responding to vertical integration | 11, 17, 18, 131, 139, 140 | Rules to manage conflicts of interest, prevent anti-competitive self-preference and ensure that all suppliers can compete on their merits. |
| Transparency | 14, 17, 138, 141 | Transparency requirements such as industry standards for posting average fees to allow ad technology customers to compare against each other. |
| Access regimes | 12, 78, 79, 82, 86, 175 | Rules for dealing with the benefit of data access. |
One trend that has emerged is for regulators to collaborate through the International Competition Network (ICN) to proclaim standards and rules. We have seen this approach recently taken by ACCC and other international regulators with respect to mergers. Here too, the ACCC intends that these measures align with the efforts of its international counterparts, including the European Union, the United States, Japan and Germany, who are developing similar regulatory responses.
Further discussion of possible remedies will be published in a report expected in September 2022.
Important considerations for any proposed settlement
It is an important step, but not unknown for some markets, to claim that the application of the competition rules governing market-based behavior is not working. Care must be taken to ensure that such a diagnosis is correct and that the remedy does not make matters worse. Once the field of market-based rules has been abandoned in favor of prescriptive regulation, it is difficult to return to it.
In deciding which measures ACCC should approve, it is not enough to point out international parallels. It is imperative (and required by the self-imposed obligations of governments) to assess any regulatory proposal against best practice regulatory principles, managed by the Office of Best Practice Regulation (OBPR) – a body large enough to sit directly in the Prime Minister’s Ministry and Cabinet.
In addition to domestic law, international treaties, such as the Comprehensive and Progressive Trans-Pacific Partnership (Chapter 25), also impose this obligation. The principles of best practice regulation require a careful analysis of the particular market problem, an investigation of other means of solving it, and some form of cost-benefit analysis of the problems, including the search for the least restrictive alternatives available in the market. using the principle of proportionality. . We need evidence-based analysis. As the OBPR states on its website, “a strong, evidence-based impact assessment is a powerful tool when applied intentionally and consistently.”
The recommendations in the final report may have already gone through this form of analysis (but none are shown) and the final report reads as if the ACCC has already reached a conclusion on the appropriate corrective actions. Each of the proposals has significant potential costs for industry participants. It is not always clear that the proposal will not cause further damage to market-based institutions.
To take one example, repeated calls for ‘transparency’, such as the creation of industry standards, demonstrate a common misconception in market analysis that the more information is publicly available, the better. for competition. But this is not universally true. We are not looking for the aggregation and transparency of all information, but the decentralization of information in a well-designed market. Perfect competition doesn’t come if everyone knows everything everyone else is doing. The balance we seek occurs through the price system itself, as Hayek pointed out in 1945 in his seminal article “The Use of Knowledge in Societyâ€.
Care must be taken that regulatory solutions are not simply a means by which competitors can comfortably settle in an area where they do not need to compete, leaving the regulator to run the market. Sometimes the competitors themselves ask for such “solutions”. The irony is that in such cases the regulator is facilitating collusion that would not be permitted by private means.
There are many issues that need to be addressed in this area, although the final report highlights advertising technology as an industry that needs to be heavily regulated. Don’t give up on the market too easily and think about how the market itself can be used to solve problems. Maybe we need reform, but maybe we need to start with the regulator first.
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