SLIDES TO MATCH PAPER IN OTHER SLIDESHARE Digital disruption is blowing a Schumpeterian gale of creative destruction throughout the global economy. These winds of change are delivering substantial increases in consumer welfare. The glowing glass screen of a smartphone enables us to access the library of all human knowledge. We can order any imaginable good or service; literally at our fingertips. Yet competition challenges are arising. Firms bearing the brunt of digital disruption are seeking regulatory protection. Those firms riding the winds of change are achieving concerning levels of global market power. Global debate is occurring regarding the extent to which regulatory intervention is appropriate. The resulting level of political concern is partly evidenced by the inclusion of digital technology in Australia’s Harper Competition Review. This paper considers unique competition issues raised by high technology industries with a particular focus on software-driven digital platforms. This paper argues that Australian competition law strikes an appropriate balance between preserving competition and promoting innovation, but continued prioritisation of high technology markets by Australian regulators and policy-makers is justified. High technology markets are as susceptible to anti-competitive behaviour as any other markets and, in some areas, particularly so. As part of this analysis, this paper considers global trends and recent developments, particularly in the United States and European Union. In that context, this paper considers how modern competition law is now seeking to address complex questions of dynamic efficiency, innovation markets and cross-border e-commerce. This paper seeks to identify insights for Australian competition law and policy in light of the recent Harper Competition Review. Finally, this paper concludes with a number of observations, including future challenges in regulating digital platforms.

1. COMPETITION LAW IN HIGH
TECHNOLOGY INDUSTRIES
INSIGHTS FOR AUSTRALIA
Dr Martyn Taylor
Partner, Norton Rose Fulbright

2. 1. Unique competition issues raised by high technology industries
2. Global trends and developments – particularly in the US and EU
3. Insights for Australia in the 21st century – competition law and policy
OVERVIEW
“..the same process of industrial mutation…that incessantly revolutionises
the economic structure from within, incessantly destroying the old one,
incessantly creating a new one… it must be seen in its role in the
perennial gale of creative destruction…”
Joseph Schumpeter, 1947

3. UNIQUE COMPETITION ISSUES RAISED BY
HIGH TECHNOLOGY INDUSTRIES

4. Market characteristic Regulatory implication
• High rate of innovation • Greater dynamic effects
• High level of R&D • Competition through innovation
• High sunk costs • Imperfect competition
• Intellectual property intensive • Appropriation of economic profits
• Imperfect competition • More concentrated markets
• M&A, JVs and strategic alliances • High risk of co-ordination
COMMON FEATURES OF HIGH
TECHNOLOGY INDUSTRIES

5. DIGITAL DISRUPTION ARISES FROM A
CONFLUENCE OF ENABLING
TECHNOLOGIES
Broadband
High-speed
Internet
access
ADVANCED
DEVICES AND
COMMUNICATIONS
Smartphones
Affordable
pocket
supercomputer
Digitalisation
Digital
encoding
algorithms
SOPHISTICATED
OPERATING
SOFTWARE
iOS / Android
Operating
system
software
E-commerce
Transactions
via digital
platforms
SIMPLE AND
USER-FRIENDLY
INTERFACE
Apps
User-friendly
application
software

6. SOFTWARE EATS THE WORLD
THE PRACTICAL IMPACT OF
DIGITAL DISRUPTION

7. "Now we stand facing a new
industrial revolution: a digital one.
With cloud computing its new
engine, big data its new fuel.
Transporting the amazing innovations
of the internet, and the internet of
things. Running on broadband rails:
fast, reliable, pervasive “
“Take all the information of humanity
from the dawn of civilisation until
2003 - nowadays that is produced in
just two days.”
“That is the magic to find value amid
the mass of data. The right
infrastructure, the right networks, the
right computing capacity and, last
but not least, the right analysis
methods and algorithms help us
break through the mountains of rock
to find the gold within.”
7
THE DIGITAL INDUSTRIAL REVOLUTION
A CLOUD COMPUTING ENGINE,
BIG DATA THE NEW FUEL

8. Characteristic Implication
Disruption Political concern
Extant regulation Barriers to entry
Rent-seeking Regulatory overreach
Bundling and leveraging Misuse of market power
Access bottlenecks Discrimination
Multi-sided markets Cross-subsidisation
Disintermediation New business models
Characteristic Implication
Network effects ‘Winner takes all’ tipping
Globalisation New market definitions
Platform competition Exclusivity / foreclosure
High switching costs High barriers to entry
Path dependency First mover advantages
Interoperability Strategic behaviour
Synergies Productive efficiencies
UNIQUE COMPETITION ISSUES ARISING
FROM DIGITAL DISRUPTION
AND ‘BIG DATA’

9. GLOBAL TRENDS AND DEVELOPMENTS –
PARTICULARLY IN THE US AND EU

10. UNITED STATES
APPLYING A GREATER WEIGHTING TO
DYNAMIC ANALYSIS IN ANTITRUST
"The kind of competition
embedded in standard
microeconomic analysis may not
be the kind of competition that
really matters if enhancing
economic welfare is the goal of
antitrust. Rather, it is dynamic
competition propelled by the
introduction of new products and
new processes that really counts.”
“If the antitrust laws were more
concerned with promoting
dynamic rather than static
competition, which we believe
they should, we expect that they
would look somewhat different
from the laws we have today.”

11. UNITED STATES
CONCERNS REGARDING THE PRACTICAL
APPLICATION OF DYNAMIC ANALYSIS
"The simple fact is that economics
does not yet provide a useful
understanding of the relationships
among market structure,
competition, and innovation.”
“Without such an understanding,
let alone empirical support,
dynamic analysis in antitrust law
remains in a gestational state,
driven largely by intuition and the
unique stories told by the
proponents and opponents of
each merger or business practice
that comes under scrutiny.”

12. UNITED STATES
ANALYSING MERGERS IN
INNOVATION MARKETS
• A merger may diminish “innovation competition”
by encouraging the merged firm to curtail its
innovative efforts
Curtailment of
innovation competition
• A merger may diminish “innovation competition”
by combining the firms with the strongest
capability to innovate in a specific direction.
Removal of strongest
innovators
• A merger may remove the potential for a
successful innovation where one firm takes sales
from another.
Removal of inter-firm
innovation competition
• Post-merger incentives for future innovation may
be lower than those in the absence of the merger.
Overall effect on
innovation

13. EUROPEAN UNION
TACKLING (ALLEGED) MISUSE OF
MARKET POWER IN INTERNET MARKETS
• On 27 November 2014, the
European Parliament passed a
resolution calling for tougher
regulation of Internet search.
• In March 2015, The Wall Street
Journal published an internal
FTC staff paper that concluded:
“Google’s conduct has resulted
– and will result – in real harm to
consumers and to innovation in
the online search and
advertising markets”.
• On 15 April 2015, the European
Commission issued a Statement
of Objections to Google
containing a number of
allegations.
• A number of regulatory
investigations into Google are
continuing.

14. EUROPEAN UNION
IMPLEMENTING THE DIGITAL AGENDA

15. INSIGHTS FOR AUSTRALIA IN THE 21ST
CENTURY – COMPETITION LAW & POLICY

16. AUSTRALIAN COMPETITION LAW
TREATMENT OF DYNAMIC
EFFICIENCY AND INNOVATION
Fortescue Metals Group Limited
[2010] ACompT 2 (30 June 2010)
Pilbara Infrastructure
Pty Ltd v Australian
Competition Tribunal
[2012] HCA 36 (14
September 2012)…
…quoting from Re
Duke Eastern Gas
Pipeline Pty Ltd
[2001] ACompT 2;
(2001) 162 FLR 1.
ACCC Chairman Rod Sims,
Law Council of Australia
Competition & Consumer
Committee AGM, 12
September 2014.

17. AUSTRALIAN COMPETITION LAW
DYNAMIC EFFICIENCY AND
INNOVATION IN MERGER ANALYSIS
1. Implicitly, when applying a temporal concept to market
definition.
2. Implicitly and explicitly, when applying a future counterfactual
analysis.
3. Implicitly, in the concept of a ‘maverick’ competitor.
4. Explicitly, as a merger factor in section 50(3)(g) of the CCA.
5. Implicitly, to the limited extent that efficiencies are recognised
in a merger.
6. Implicitly and explicitly, as a factor in any merger authorisation
decision

18. AUSTRALIAN COMPETITION LAW
GLOBALISATION OF MARKETS –
IMPACT ON MARKET DEFINITION
Mode 1 – Service delivered into an Australian market
Mode 2 – Consumer crosses into a United States domestic market.

19. AUSTRALIAN COMPETITION LAW
TREATMENT OF DIGITAL DISRUPTION AND
BIG DATA BY HARPER COMPETITION REVIEW
“New technologies are
‘digitally disrupting’ the way
many markets operate, the
way business is done and the
way consumers engage with
markets.”
“The challenge for
policymakers and regulators is
to capture the benefits of
digital disruption by ensuring
that competition policy, laws
and institutions do not unduly
obstruct its impact yet still
preserve expected safeguards
for consumers.”

20. CONCLUSIONS

21. SUMMARY OF KEY POINTS
High technology
markets are as
susceptible to anti-
competitive
behaviour as any
other markets and, in
some areas,
particularly so.
Many unique
competition issues
are raised by
software-driven digital
platforms incuding
multi-sided markets,
network effects, path
dependency, and
switching costs.
Reservations have
been expressed
regarding the manner
in which dynamic
efficiency issues are
addressed by US
antitrust law.
Significant
competition
developments are
occurring in the EU,
including action
against Google and
realising a Digital
Single Market.
Australian courts and
regulators clearly
recognise the
importance of
innovation and
dynamic efficiency in
Australian
competition law.
The ACCC’s analysis
to date has been
sophisticated and
discerning, alert to the
risk of imperfect
competition.
The ACCC’s Merger
Guideline address
dynamic competition
implicitly and
explicitly in at least 6
ways, but evidential
limitations still arise.
In the context of
globalised markets,
Australian courts are
still grappling with a
‘market in Australia’,
but reforms
recommended by
Harper may fix this.
Australian competition law strikes an appropriate balance between preserving
competition and promoting innovation. However, continued prioritisation of
high technology markets by Australian regulators is justified given the concerns
identified in this presentation, particularly given current global trends.

22. DR MARTYN TAYLOR
Partner
Norton Rose Fulbright
martyn.taylor@nortonrosefulbright.com
Ultimately, the vision for the 21st century endorsed by this presentation is
one in which Australian competition law continues to embrace the winds
of Schumpeterian change…