Digital marketplaces under investigation as the ACCC focuses its inquiry July 28, 2021

With the rise of digital marketplaces as one-stop-online-shops, there’s a greater need for scrutiny, assessment and regulation

With more and more consumers turning to online shopping, the Australian Competition and Consumer Commission (ACCC) has announced that it will investigate digital marketplace giants such as Amazon, eBay, Kogan, and Catch. The aim is to examine competition and consumer concerns.

Scope of the ACCC’s inquiry into digital marketplaces

One side-effect of the pandemic is a 57% growth in online purchasing in 2020. ACCC Chair Rod Sims said:

“These online marketplaces are an important and growing segment of the economy, so it is important that we understand how online marketplaces operate and whether they are working effectively for consumers and businesses.”

The ACCC is particularly interested in:

• Competition: the degree of competition between the marketplaces in Australia and the extent to which competition from other sources constrains or affects their practices
• Third-party sellers: the benefits consumers and third-party sellers derive from using the marketplaces
• Payment terms: the nature of the marketplaces’ terms and conditions, fees, and other charges and their impact on third-party sellers and consumers
• Placement and priority of certain brands: how marketplaces determine which products are given more prominent placement or are more visible in the marketplace, and how this impacts competition and consumers
• Use and collection of data: the extent to which marketplaces collect, analyse, and use data from third-party sellers and consumers
• Supply of own products: where marketplaces also supply their own products on the platform, the impact that these sales and associated practices may have on competition with third-party sellers
• Pricing strategies of suppliers: the impact of the marketplace’s terms, conditions, and functionality on the pricing strategies of sellers and on the final consumer prices
• Promotions and advertising: the impact of practices engaged in or facilitated by marketplaces to influence consumers to purchase goods
• Consumer protection: the role marketplaces play in protecting consumers
• Complaint handling: the effectiveness of the marketplaces’ complaints handling and dispute resolution processes

The ACCC is seeking submissions from consumers, platforms, and third-party sellers by 19 August 2021. A final report is due by 31 March 2022. The issues paper outlines the scope of the inquiry.

What is misuse of market power?

Recently, there has been increased scrutiny in other countries over the market power of online retail marketplaces. For example, in the United States and Europe, Amazon has a substantial degree of market power.

The ACCC is concerned about the potential risks posed by Australia’s digital marketplaces if online activity remains high. In Australia, there is no single marketplace that holds the dominant power. But even so, the ACCC wants to make sure that the large players are participating fairly.

It is not against the law to have market power (it is usually just the sign of good business!). However, it is unlawful where there has been a misuse of that power, as this is considered anti-competitive conduct. A business may have misused market power where its conduct has the purpose, effect, or likely effect, of substantially lessening competition. Misuse of power could include:

• Refusing to deal with some businesses, such as preventing suppliers from listing their products on the marketplace platform
• Lowering prices of products that result in no or little margin, which other smaller businesses would not be able to match
• Imposing certain conditions on customers to be eligible for rebates
• Bundling products or services together. Typically, this requires customers to purchase something else before they are permitted to purchase the desired product or service
• Supplying products on the condition that the customer purchases a product or service from a particular third-party supplier

The final word

While we await the ACCC’s final report, now is the time to make sure your digital house is in order, including checking on:

• Pricing practices
• Arrangements with third parties
• Use and collection of data

Contact our commercial team if you have any questions or concerns about the operation of your digital marketplace.

This article was written by Senior Associate Alexandra Shaw