Australian competition law already strikes an appropriate balance between preserving competition and promoting innovation but a continued prioritisation of these markets by Australian regulators and policy-makers is required. I INTRODUCTION
There are unique competition law issues raised by new technologies particular on software-driven digital platforms and these new technology markets are as susceptible to anti-competitive behaviour as are any other markets. That said, my paper will argue that Australian competition law already strikes an appropriate balance between preserving competition and promoting innovation and there is no real impetus for drastic change as a result of new technologies. The paper will show that despite the adequacy of Australian competition law in dealing with new technologies there should be a continued prioritisation of these markets by Australian regulators and policy-makers as evidenced by the recent Harper Competition Review.

As part of this analysis, my paper will firstly identify common characteristics of new technology industries and what their implications are on the existing regulatory landscape. It will then identify US trends in the use of dynamic analysis with a focus of mergers and some reasons why there has been a cautious adoption of this analysis. In that context, my paper will then consider how Australian competition law is now seeking to address complex questions of dynamic efficiency, innovation markets and cross-border e-commerce using recent merger clearance cases and policy consideration in the Harper Review.

II NEW TECHNOLOGY INDUSTRIES AND COMPETITION LAW ISSUES
This section of the paper will firstly identify common characteristics found across new technology industries and then considers the unique competition law issues raised by these new technology industries.

New technology industries typically see a high rate of innovation. New technology business models are based on commercialising new developments and are focused on achieving high rate of innovation. As a result of the high pace of innovation these industries often experience greater dynamic effects when compared to other industries. Further, there is a high level of research and development that goes into a new technology industries and this innovation is often regarded as more important than the typical priced based competition. As such new technology companies allocate more resources to research and development. Given the emphasis on product innovation and the introduction of new products, competition between companies goes beyond it simply being about pricing of existing products and services. New technology industries can also experience high fixed costs and low marginal costs resulting in high sunk costs. As such there can be large supply-side economies of scale. This cost structure lends itself to a more concentrated economic market due to the higher fixed costs experienced in these industries. Another typical feature of high technology industries is its reliance on intellectual property. The protection of this intellectual property is often critical in realising any profitability to recover research and development costs. The very nature of intellectual property rights enable economic benefit to the exclusion of all others and often sits outside the competition legal regime by way of exception for example patents, copyright and to a lesser extent trademarks. New technology industries also experience a high degree of coordination due to the costs and risks associated with developing and protecting intellectual property and the reliance on numerous technology standards to ensure basic compatibility and interoperability. This level of integration, along with mergers and acquisitions, joint ventures and strategic alliances are common in new technology industries which all require careful competition law scrutiny in these markets. Finally, new technology industries are subject to significant network effects, which is characterised by demand-side economies of scale as the value of the network increases with the total number of users on the network or platform.

The features of new technology markets identified above raise important considerations in competition legal analysis. For example if the current regulatory regime creates barriers to entry which favour traditional business models and in some way impedes legitimate market entry then there could be a case for deregulation or regulatory reform. Similarly, existing businesses are making an increasing number of complaints to competition law regulators in response to the entrance of disruptive businesses creating a burden on regulators in determining whether behaviours are legitimate or involved anti-competitive conduct. The issue of bundling, tying and leveraging by a new market entrants also raises competition law issues as seen in the browser wars between Netscape and Microsoft. New technology industries also have the potential of players within the market amplifying their market power by creating virtual bottlenecks by developing proprietary software that can be used to deny access to a device or other functionality. Two sided markets are also an interesting feature of new technology industries that raise competition law issues where disruptive business models simultaneously match buyers on one side of the market with sellers on the other side. Where there is heightened price sensitivity in one market, the other market can cross subsidise the other potentially increasing barriers to entry. These multi-sided markets may perpetuate network effects and facilitate leveraging of market power. Further complications may arise, for example, when one-sided the market is fully subsidised as is the case in Google’s free Internet search product which is cross subsidised by their AdWords advertising revenue. Disintermediation is another factor on new technology industries that raises questions of access, exclusivity, foreclosure and bundling. Internet based business models are increasingly threatening the ability for businesses that would have historically bundled goods and services through existing value chains. As noted earlier, the existence of network effects may lead to a winner takes all scenario that could lead to a monopoly market. In these markets, any market entrant would need an innovation of sufficient and significant magnitude to dislodge the industry leader, which is often, near impossible because of the nature of the network effect. The globalisation of markets also introduces new challenges for existing competition law regimes around the world. Internet based e-commerce is very rarely constrained by national borders and as a consequence markets are becoming all globalised and competitive. High switching costs for consumers raises another level of competition law considerations where new technology industries create disincentives for consumers to take their custom elsewhere. For example consumers may be locked into a particular digital platform by virtue of the proprietary software used or otherwise they face forfeiture of existing valuable content due to its limited portability by design. Complications also arise where intellectual property rights protect technology. Where interoperability issues arise, the owner of the favoured standard or patent owner may possess a substantial market power or even create a monopoly particularly if they are aggressive in protecting their intellectual property through litigation. There may also be significant consumer upside by the combination of complimentary assets that enhances innovative capabilities by realising synergies and cost efficiencies. Although these may be seen as pro-competitive mergers and business practices allowing for the creation of efficiencies in combining complimentary assets, regulators are often challenged to reconsider how they apply existing competition law.

III US TRENDS IN COMPETITION LAW ANALYSIS This section of the paper outlines some recent trends developing both in the literature and in courts as to the most appropriate competition law analysis required when considering anti-competitive behaviour in new technology industries. It will show that in the US there has much debate surrounding a more nuanced and complex analysis of anti-competitive behaviour needed recognising dynamic competition and why adoption of this analysis to this point has been cautious.

The question as to whether competition promotes innovation or whether market concentration is a more effective economic means to facilitate research and development has, up until recently, not recognised the complexities of new technology industries. Although it is agreed that economic growth is quintessential to innovation, the relationship between innovation and competition had remained static particular with the legislature focussing on static competition rather than dynamic competition. There is growing recognition by the regulators in the US that a more nuanced relationship between competition and innovation is apparent and that dynamic efficiency will ultimately deliver the greatest welfare gains. The remainder of this section will show how factoring in dynamic efficiency is the favoured approach in dealing with new technology industries and competition law.

Dynamic efficiency does not simply involve competition based on price. Dynamic efficiency considers new products and technological change. These dynamic efficiencies include factors such as reducing costs by refining existing products, processes and capabilities hence shifting the supply curve but also factors in entirely new products and the new ways of doing business. It is these leapfrog form of dynamic efficiencies that move the demand curve out whilst simultaneously moving the supply curve out to create a more efficient production to meet this unmet demand. The traditional static efficiency analysis would only focus on short run factors such as marginal prices and marginal costs in an attempt to reduce dead weight loss. Whereas now, it is agreed that economic growth and therefore consumer welfare will see significantly larger gains through the realisation of these dynamic efficiencies. It means that regulators must be cognisant of a broader and more complex level of analysis. In new technology industries innovation may not just involved substitute products and services but rather complimentary products and services. Previously it was viewed that dynamic competition was a pursuit towards achieving a position of dominance by overturning incumbent market leaders. However, given the level of integration commonly found in new technology industries as noted above, there is now recognition in the value of complimentary products that may further increase these dynamic efficiencies. Using traditional static economic analysis that focuses on the promotion of the static efficiency in an attempt to regulate market power in particular product markets, may not deliver optimal dynamic outcomes when used to analyse new technology industries. As such, this static focus is more concerned with immediate market power outcomes and less concerned with the long term effects of greater dynamic efficiency. It is a commonly held view that US anti-trust law has a bias towards static analysis. A shift towards dynamic efficiency outcomes over the traditional static competition analysis would place less weight on market share and concentration in the assessment of market power and more weight on assessing innovation and enterprise level capabilities. Moreover, dynamic analysis requires a long-term perspective and recognition of the value that intellectual property plays in new technology markets. While a static economic analysis is centred on immediate market outcomes, a dynamic analysis would factor in the competitive process and the potential for innovation overtime in particular market. Using a dynamic approach places emphasis on the mechanisms that drive innovation like investment in research and development and intellectual property, rather than simply the outcomes of behaviour within a particular market. In taking this approach there may be some short-term static inefficiencies that are tolerated that would otherwise raise issues in order to realise dynamic efficiencies and potential welfare gains. Another key proponent to a dynamic analysis is the recognition that in rapidly innovating markets the concept of market share maybe less relevant. This is because competition beyond the market itself may be as critical as competition with in any traditionally defined market. That is, innovation maybe an important non-price dimension of inter-firm rivalry.

Although modern US anti-trust law does recognise market changes overtime and does seem to predict the impact of innovation on markets significant changes to the current anti-trust regime and merger policies in the United States would be required to implement a dynamic view of competition. More emphasis is required to be given two modern anti-trust analyses that recognise the benefits of innovation particularly in new technology markets. There is a growing acceptance of dynamic analysis within United States however the practical application is somewhat more complex raising issues of implementation and institutional capabilities. Ginsburg & Wright note that the US courts having incorporated dynamic analysis within some judgments as they relate to mergers, however they have only grounded to their analysis on established economic theory, empirical evidence, traditional learning and case specific evidence. Given the recent emphasis on dynamic analysis and the fact that economic theory in itself still remains untested but for a handful of specific test cases there is reluctance by the US judiciary to rely on and analysis purely grounded in factors that promote dynamic efficiencies. Ginsburg & Wright also note that institutional capabilities are as important as the substantive considerations when applying dynamic analysis. Applying dynamic analysis with in the new technology industries comes with a very high level of technical complexity that often involve new digital platforms, in conjunction with complex economic analysis whilst applying involving markets and economic concepts such as network externalities and dynamic efficiencies. These factors create an environment where regulators a are somewhat reluctant to take to trial a case that involves new technology industries by virtue of the uncertainty of the outcome and the enormous strain on resources to amount evidence to support the case.

AUSTRALIAN COMPETITION LAW IN DEALING WITH NEW TECHNOLOGIES This section of the paper considers how Australian competition law treats issues in new technology industries focusing firstly on the treatment of dynamic efficiency and innovation using recent merger clearance decisions to illustrate the approach taken. This is followed by a consideration of how the market definition is being refined to better address globalization of markets and e-commerce. These factors will show how Australian competition law already strikes an appropriate balance between preserving competition and promoting innovation but a continued prioritisation of these markets by Australian regulators and policy-makers is required.

A. Treatment of dynamic efficiency and innovation in Australia Although there have only been a handful of Australian cases that have expressly considered the issue of dynamic efficiency, it is clear that a level of importance has been identified in adopting a dynamic analysis. The Australian Competition Tribunal commented in the Fortescue Metals decision in 2010, for example:

“Dynamic efficiency arises because rivalry between firms encourages innovation to develop new and improved products. Schumpeter, with whom the dynamic efficiency principle is most closely associated, acknowledged the advantage of large firms to finance substantial research and development, but held that new firms would also be a constant source of supply of new ideas and innovations. Some economists contend that innovative efficiency provides the greatest enhancement of social wealth, suggesting it is the single most important factor in the growth of real output in industrial countries.”

On appeal, the High Court of Australia quoted from the previous Australian Competition Tribunal decision in Duke Eastern Gas Pipeline:

“Productive efficiency is production at least cost. Allocative efficiency occurs when services are provided to those who value them most highly. Dynamic efficiency involves preserving incentives for innovation and investment… On the basis of many studies and long experience, economists have concluded that the main virtue of competition is that it provides a very powerful means of securing important gains in allocative and especially dynamic efficiency”

The Australian Competition and Consumer Commission (ACCC) also recognises that market power derived from innovation is a legitimate part of the competitive process. In fact, the chairman of the ACCC commented in September 2014:

“…although it should not be necessary to say this, conduct such as a corporation gaining an advantage through R&D and innovation, or as a result of economies of scale, would not be regarded by the ACCC, or the courts, as a substantial lessening of competition, even if the conduct caused competitors harm or forced them to exit the market. These activities are part of the competitive process”

It is against this backdrop that provisions of Australian competition law should be considered although explicit reference to dynamic efficiency and innovation is not explicitly dealt with. The clearest indication of the adoption of a dynamic analysis by courts and regulators in Australia is in the merger context. The Australian approach to mergers involves the application of section 50 of the Competition and Consumer Act 2010 (Cth) (CCA) which states that a company must not directly or indirectly acquire shares or assets if the acquisition would have the effect, or be likely to have the effect, of substantially lessening competition in any market. This approach does not trade-off efficiency gains against efficiency losses, but rather asks where the efficiency losses alone from a merger are likely to be material, as evidenced by a substantial lessening of competition. Furthermore, the net efficiency gains from a merger maybe considered under a separate authorization process based on net public benefit. That is the Australian authorization process is a consideration of a trade-off between productive efficiency and dynamic efficiency gains, as against a negative efficiency and dynamic efficiency losses. This is an indication of the wide range of the non-economic societal benefits that may be realised in merger. There are three recent merger clearance decisions that illustrate the Australian approach to new technology industries in the context of competition issues and dynamic analysis. The first involved Expedia, Inc and the proposed acquisition of Wotif.com Holdings Limited in 2015. Expedia is a global online travel agency and was seeking to acquire Wotif, an ASX-listed global online travel agency. The ACCC defined the geographic market to be the distribution/booking of Australian accommodation, encompassing bookings made by Australian residents and inbound bookings from overseas residents. The ACCC concluded that the acquisition was unlikely to substantially lessen competition. It was determined that the market for online distribution and booking was a two sided market with positive network effects and that global online travel agencies were not considered close substitutes for most consumers that would otherwise it visit bricks and water travel agents. It was also noted that Expedia and Wotif compete in other markets of online distribution including the websites of individual accommodation providers. In coming to its determination, the ACCC considered the pace and breadth of innovation in the online travel agent market indicating its analysis was grounded in the assumption that this market was a dynamically competitive market.

Another recent example of a merger clearance decision made by the ACCC was the iSentia Pty Ltd proposed acquisition of Australian Associated Press Pty Ltd’s media monitoring business in 2013. The ACCC’s preliminary view was that, due to the growth of online media content and the convergence of news media being delivered through multiple channels (print, broadcast and online), it may no longer be appropriate to define the product market according to the historic separate forms of media (print, broadcast and online) and as such recognizing the leapfrog welfare games that maybe realised in a market that is being disrupted by innovation.

In contrast, the ACCC expressed concern that the proposed acquisition by Carsales.com Ltd of assets associated with Trading Post from Telstra Corporation Ltd in 2012 may substantially lessen competition. Carsales is the largest online automotive classifieds business in Australia, through its carsales.com.au website. Whereas the Trading Post provides online classified advertising at its website tradingpost.com.au. Based on the concerns expressed by the ACCC Telstra abandoned the acquisition. It was recognised that the markets for online classified advertising are two sided and large sunk costs relating to the investment in technology and marketing in order to build the brand awareness where key factors. That is, in order for a new entrant to overcome barriers arising from these network effects, significant investment would be required in order to attract both sides of the market being advertisers and consumers which in any case would not guarantee any level of success. In this particular case the ACCC focused on the high barriers to entry as being the key determinant.

As these three merger clearance cases show, Australian competition law already gives a significant consideration to dynamic analysis and effects particularly with respect to the impact of a merger on innovation. Although the examples above relate to merger clearances, many of the concepts adopted by the ACCC can be applied to other aspects of Australian competition analysis with consideration of particular provisions of the appropriate legislature and factual scenarios.

B. Market definition in global markets and e-commerce

The geographical market definition in Australian competition law is found in section 4E of the CCA, which states that, a market for goods and services means a market in Australia in which those goods or services are substitutable for, or otherwise competitive with, the first mentioned goods or services. Further, where there is a claim of misuse of market power under section 46 of the CCA a global market includes Australia if sales are made here as noted in Riverstone by the Federal Court. Since Riverstone, there have been many cases in the Federal Court dealing with the concept of a global market. For example, in Emirates, it was recognized that the place of contracting is not determinative of the geographic locality of the relevant market where the judge noted that the market refers to any competition or substitution between buys and sellers and not just the physical location of where the supply contract is concluded. The judgment in Emirates illustrates that a market in Australia includes both the demand-side substitution but also the supply-side substitution. There has been some more recent conjecture as to the definition of a market in Australia in the context of supply-side substitution in the case involving the ACCC and Air New Zealand. This case involved the transport of cargo to airports in Australia from Hong Kong. The judge found that there was no evidence of a supply-side substitution merely because the cargo ended up at a particular point where the final destination does not necessarily extend the geographic market or any other location en route. Although these cases do provide some guidance with respect to defining the geographical limitations of a market within Australia, they do not provide a conclusive definition with respect to new technology industries particularly relating to cross-border supply over the Internet. That is, defining the breadth of competition by reference to supply-side and demand-side substitution remains inconclusive in the context of online industries in Australia.

The ACCC has adopted a method of analysis that uses the concept of import competition typically used in merger clearance determinations. This analysis focuses on the existence of imports into the Australian market when trying to determine the market power of a local supplier. That is, the ACCC will define the relevant market to be in Australia or a part of Australia and take into account any competitive constraint provided by overseas suppliers. As such, imports are included when determining market share and whether there is a delusion of market concentration in major clearance considerations. Further, if this import competition fracture domestic supplies, the ACCC would be unlikely to find that this activity would substantially lessening competition. This analysis however does not in itself consider whether the importer or the foreign digital platform itself has market power. Another issue that remains unresolved in Australia with respect to identifying a market of an overseas digital platform is that if the ACCC maintains that the markets in which an overseas digital platform operates is global, it cannot be said that all trade or commerce that occurs within the global market can be regarded as occurring in a market in Australia. And so in the case where a supplier of a good or service operates in a global market, it remains to be seen whether it is necessary to show that the business is dominant in that part of the global market that falls within the Australian market or whether that business is dominant in the global market and that that global market includes Australia. These outstanding issues particularly with respect to the determination of the breadth of a market under Australian competition law we’re giving particular attention in the recent competition policy review commissioned by the Australian government (the Harper Review). The Harper Review recommended that the concept of a market in Australia should be amended to ensure it captures competition from goods imported or services rendered by persons carrying on business outside of Australia. The Harper Review also recommended is that the extraterritorial section 5 of the CCA be extended to capture conduct by entities based overseas who conduct business within Australia or between Australia and places outside of Australia. Adopting the recommendations made in the Harper Review would help remove any ambiguity as to identifying a market of an overseas digital platform and the market power that any particular player within that market possesses in order to determine whether there has been any anti-competitive behavior. The digital disruption inherent in new technology industries has redefined the way many markets operate, the business models used within those markets and the way consumers engage with new technology industries. The challenge for policy makers and regulators is to capture the benefits of new technology industries by ensuring that competition policy, laws and institutional capabilities do not unduly obstruct the positive impact yet still promote competition, generate welfare gains and preserve safeguards for consumers.

CONCLUSION In identifying the characteristics of new technology industries and the unique competition law issues raised by the advent of online digital platforms, this paper has shown that new technology industries are just as susceptible to anticompetitive behavior as any other traditional bricks and mortar markets. Even though new technology industries experience higher rate of innovation and heavy investment in research and development, they do exist in imperfect competitive markets that stem from high sunk costs and intellectual property protections. Coupled with the increasing nature of coordinated and interoperable products and services, new technology industries require careful scrutiny by policy makers and regulators. Competition issues must continue to be scrutinised with a higher level of understanding of features such as two-sided markets, network effects, ‘winner takes most’ tipping, high switching costs, and other interoperability and platform–based exclusionary competition.

The paper also considered current trends in the US as they relate to innovation and dynamic analysis with respect to mergers. The value of adopting a dynamic analysis has been recognized and yet the practical application of this analysis remains unsettled in the US with the requirement of significant resources needed to be allocated by regulators in understanding new technology industries and the evidence required to bring an action.

In the final section of the paper, it was shown that Australian innovation and dynamic efficiency considerations have mostly been considered in merger clearance cases. In the context of global and e-commerce markets, Australian courts are still coming to terms with the application of current consumer law increased by the advent of new technology industries. The recent Harper Review does provide some recommendations seeking to clarify the concept of the ‘market in Australia’ and recommends extending the reach to overseas companies that either operate in or through Australia.

Despite the issues outlined above, Australian competition law does strike an appropriate balance between preserving competition and promoting innovation as evidenced by the regulator’s decision in merger clearance cases which can applied more broadly. However given the susceptible nature of new technology industries to anti-competitive behavior Australian regulators and policymakers should continue to prioritise further clarification and development in legislative reform.

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