Australia’s proposed digital competition regime

Please don’t follow Europe (again)

Guess where you are.

You didn’t get Apple AI when it was released. You didn’t get to experience Threads launch frenzy while asking yourself whether you really need another X. You can’t find hotels in Google Search anymore. Your iPhone is less secure because of forced sideloading of third party app stores.

Of course, you are in Europe. More specifically, you are experiencing the fallout of the European Union's 2022 Digital Markets Act (DMA).

And right now the Australian Treasury is proposing to implement a similar regime here in Australia. Get ready for fewer features, less innovation and a degradation of your digital life. Please, Australia, don’t follow Europe's regulatory lead (again).

The DMA is the exemplar of a new way of regulating digital platforms through ex ante regulation rather than ex post regulation. Rather than regulators acting after competitive problems emerge and using the courts, several jurisdictions are moving towards trying to fix problems before they emerge.

Spoiler alert: an ex ante regime is very hard when you can’t see the future, or see into the firms that are making the choices, or even figure out what the problems are.

The problem is that ex ante regulation disrupts product development, slows innovation, fails to understand how digital markets evolve, and pushes major economic interventions to subordinate legislation outside the accountability and scrutiny of parliament.

Together with my colleagues (Dirk Auer, Chris Berg, Aaron M. Lane, Geoffrey A. Manne, Jason Potts and Lazar Radic) I have made a submission arguing that the proposed ex ante regime in Australia should be rejected.

Here are some of the reasons why.

Australia already has strong competition laws. The ACCC has successfully gone after Google, Meta, and Uber under existing consumer rules. But instead of using their competition powers, they’ve spent years writing reports asking for more control - nine interim reports so far, with a tenth on the way.

The proposal itself misunderstands how competition happens in a digital economy. We are not in an industrial economy where we can focus on static market power. Digital markets thrive on dynamic competition, where entirely new products and categories emerge rapidly. Just think of how AI is currently reshaping search.

We should not copy Europe’s mistakes. Even further, the Australian proposal is to push the specific obligations to ‘subordinate legislation.’ That is, rules that would bypass proper parliamentary debate. Major changes to our digital economy could be made through parliament. This should not be controversial, and we should be sceptical of arguments of flexibility and efficiency in policy making.

Advances in AI make this even worse. Every digital platform is being transformed. How would these rules apply to AI models? Would Claude and ChatGPT need regulatory approval for each algorithm update? Would AI product recommendations count as unfair ‘self-preferencing’?

Yes, digital markets raise competition concerns. But we have laws for that. The Competition and Consumer Act covers market power, unfair contracts, and self-preferencing. The ACCC just needs to enforce it.

And of course the timing is terrible. The United States is backing away from EU-style digital regulation. They now know what sweeping measures like GDPR do to an economy. They can see that Europe’s economy is less dynamic, less innovative, and less competitive globally.

Australia needs acceleration and innovation. To get there we must not only reject ex ante digital competition proposals, but also get onto more important things, like enabling crypto and a domestic space industry.