Program - Intellectual Property Research Institute of Australia

Competition

in the Online

Environment

Melbourne Business School

Wednesday 28 November 2012

As the internet becomes an increasingly important part of the

Australian economy and society, understanding and supporting

the pro-competitive dynamics of the online environment is of

greater importance for policy-makers and regulators.

The purpose of this conference is to

discuss research on the economics,

management, marketing and legal

analysis in this relatively new area of

debate here in Australia.

This thought leadership is underpinned

by independent academic research,

supported by Google.

RESEARCHERS:

• Prof Bob Harris, University of California

• Prof Stephen King, Monash University

• Prof Catherine Tucker, Sloan MIT

• Dr Alexandra Merrett, University of Melbourne

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Program

9:30am – 10:00am

Registration – and morning tea on arrival

10:00am – 10:10am

Welcome and housekeeping: Iarla Flynn, Google Australia

10:10am – 11:10am

Panel 1: Switching costs and implications for competition and consumer protection

Presenter: Professor Robert Harris, University of California, Berkeley

Moderator: Dr David Gruen, Department of the Treasury

Panellist: Richard York, Frontier Economics

Panellist: Professor Henry Ergas, University of Wollongong and Deloitte

11:10am – 12:10pm

Panel 2: Market definition and counterfactual analysis in the Internet age

Presenter: Professor Stephen King, Monash University

Moderator: Simon Uthmeyer, DLA Piper

Panellist: Dr Philip Williams, Frontier Economics

Panellist: Graeme Samuel AC, Greenhill & Co. Australia

12:10pm – 1:10pm

Lunch

1:10pm – 1:40pm

Keynote address: Search integrity

Introduction: Professor Beth Webster, The University of Melbourne

Presenter: Alan Noble, Google Australia

1:40pm – 2:40pm

Panel 3: Competitive responses to online retail competition

Presenter: Dr Alexandra Merrett, The University of Melbourne

Moderator: Dr Jill Walker, Australian Competition & Consumer Commission

Panellist: Dr Tom Hird, Competition Economists Group

Panellist: Scott Minehane, Windsor Place Consulting

2:40pm – 3:00pm

Afternoon tea

3:00pm – 4:00pm

Panel 4: Platform competition and measurability in online advertising

Presenter: Professor Catherine Tucker, Sloan MIT

Moderator: Ramin Marzbani, Smart Services CRC

Panellist: Associate Professor Catherine de Fontenay, Melbourne Business School

Panellist: Jeremy Nicholas, BMF

4:00pm – 4:20pm

Closing Remarks

Competition in the Online Environment 2

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Switching costs and implications

for competition & consumers

Over the past few decades, we have experienced

an unprecedented and rapidly accelerating pace

of innovation, especially in communications and

information technologies. This has had an enormous

impact on competition, mostly for the better.

Switching costs, the cost of a customer changing from

one supplier of a product or service to another, play an

increasingly important role in competitive dynamics,

especially in industries subject to technological change

and/or network effects.

This paper considers the interplay of switching costs

and the emergence of the digital, online economy.

It distinguishes and illustrates the main types of

switching costs, including those that occur inherently

and those that are strategically enhanced by

competitors. It also discusses how online services have

reduced switching costs across many markets.

The paper analyses the level of switching costs in four

representative markets:

• Computer operating systems—there are high switching

costs, which can have a prohibitive impact on the

ability of users to switch providers, which is a strong

indicator of monopoly power;

• Mobile phones and internet access—there are

intermediate switching costs, with regard to contracts,

shopping, uncertainty and shopping (bundling),

these are constraining competitive developments

and regulatory changes could be made to improve

competition;

• Internet search—there are low to zero switching costs,

meaning users can easily switch providers and a high

market share is not an indicator of market power.

It recommends that regulators implement policy

instruments to lower the competition-reducing effects

of high switching costs. Specifically, encouraging “data

portability” to make it easier for customers to switch

and setting standards for product information disclosure

to facilitate comparison shopping.

Researcher

Dr Bob Harris

Professor Emeritus, Haas School of Business, University of California, Berkeley

At Berkeley, Bob taught courses in

competitive strategy, antitrust and

competition policy, and network

industries and served as Chair of the

Business & Public Policy Group.

Bob has published more than 50

academic articles and dozens of

reports analyzing competition and

competitive strategies, competition

and regulatory policies, and

innovation and the effects of

technological change.

Served as Deputy Director for

Cost, Economic and Financial

Analysis at the Interstate Commerce

Commission, where he played a

key role in the deregulation of US

surface freight transportation.

Testified before US Congressional

Committees on antitrust, regulatory

policy and telecommunications

legislation; the Federal

Communications Commission; 27

state regulatory commissions; and

national regulators in Canada,

Australia, and Mexico.

Testified in state and federal

courts on competition matters in

commercial litigation in information

technologies, telecommunications,

transportation and a wide range of

other industries.

Bob has a PhD Economics,

University of California, Berkeley

and a MA and BA Social Science,

Michigan State University.

Competition in the Online Environment 3

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Moderator

Dr David Gruen

Executive Director of the Macroeconomic Group, the Treasury

David joined the Treasury in January

2003. Before that, he was Head

of Economic Research Department

at the Reserve Bank of Australia

from May 1998 to December 2002.

He worked at the Reserve Bank

for thirteen years, in the Economic

Analysis and Economic Research

Departments.

Before joining the Reserve Bank,

he worked as a research scientist

in the Research School of Physical

Sciences at the Australian National

University. With financial support

from a Fulbright Postdoctoral

Fellowship, he was visiting lecturer

in the Economics Department and

the Woodrow Wilson School at

Princeton University from August

1991 to June 1993.

He holds PhD degrees in physiology

from Cambridge University,

England and in economics from the

Australian National University.

panelists

Professor Henry Ergas

Professor, University of Wollongong SMART Infrastructure Facility and Senior Economic

Adviser, Deloitte

From 1978 to 1993 Henry was at

the OECD in Paris where amongst

other roles he headed the Secretary-

General’s Task Force on Structural

Adjustment and was Counsellor for

Structural Policy in the Economics

Department. He has taught at a

wide range of universities, including

the École nationale de la statistique

et de l’administration économique

in Paris (1980-1990), the Kennedy

School of Government at Harvard

(1994-1995) and Monash University

in Melbourne (1988-1990).

He chaired the Intellectual

Property and Competition Policy

Review undertaken by the Howard

government in 1999-2001, and

was a member of the Export

Infrastructure Review in 2005.

Henry is a lay member of the New

Zealand High Court and a columnist

for The Australian.

Richard York

Director, Frontier Economics

Richard’s key areas of expertise

include the economic regulation

of telecommunications networks

(especially in relation to mobile

phone networks) and the application

of trade practices legislation in

Australia and New Zealand.

Prior to joining Frontier Economics

in December 2009, Richard worked

for two years as the Regulatory

Affairs Manager at Vodafone New

Zealand. Before this, he worked

as the Economic Associate to the

Australian Competition Tribunal, and

spent almost eight years working

for the Australian Competition and

Consumer Commission – the last five

of which were spent as a Director

with primary responsibility for

managing regulating of the mobile

phone industry in Australia.

In addition to his work at Frontier,

Richard is a Senior Fellow within

the Melbourne Law School at the

University of Melbourne, where he

teaches a post-graduate course on

the Law and Economics of Access

Regulation.

Competition in the Online Environment 4

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Market definition and market

power in two-sided markets

The high tech economy has lead to the rise of a

number of new business models, which require a new

approach to competition analysis. Two-sided markets,

where the market is an economic platform creating

value by enabling interactions between distinct user

groups are increasingly common. However, when

combined with network effects, as occurs with

internet platforms, media outlets and payments

systems, these markets raise a variety of important

issues for competition regulators. In particular, when

participants on one ‘side’ of a platform gain positive or

negative externalities from participants on the ‘other

side’ of the platform.

This paper considers how competition regulators should define relevant markets for competition analysis and

determine market power, and concludes that:

(a) Market definition can still follow traditional

Australian methods but inferences about market

power or dominance cannot be made from market

share alone;

(c) Competitive interactions and conclusions about

market power are highly sensitive to the behaviour

of market participants and constraints on pricing.

In some circumstances, market outcomes can vary

significantly simply based on the ‘norms of behaviour’

established for the relevant platform; and

(b) Traditional measures of market power, such as a

firm’s ability to constrain competitors and sustain a

price increase, have no validity in many two-sided

markets and cannot even be used as a starting point

for measuring market power;

(d) Competition regulators should be very cautious about

concluding that platforms in two-sided markets have

market power. To make such a conclusion, regulators

need to understand the nuances of the market to a

much higher degree than is the case for standard onesided

markets.

Researcher

Professor Stephen King

Dean, Faculty of Business and Economics, Monash University

Stephen’s main areas of expertise

are in Trade Practices economics,

regulation and industrial

organisation.

Prior to joining Monash University,

Stephen was a Member of the

Australian Competition and

Consumer Commission (ACCC).

While at the ACCC, Stephen chaired

the Mergers Review Committee and

was closely involved with a wide

range of merger decisions.

He was involved in the full range

of activities undertaken by the

Commission. These included both

on-going functions - such as

authorisation decisions, regulatory

determinations and enforcement

actions under the Trade Practices Act

- and ad hoc activities undertaken by

the Commission.

Before the ACCC, he was a Professor

of Economics at the University

of Melbourne and a Professor of

Management (Economics) at the

Melbourne Business School.

Stephen is a Lay Member of the High

Court of New Zealand and in 2007

assisted the Court in the appeal by

Woolworths and Foodstuffs against

a decision of the New Zealand

Commerce Commission. He is also a

part-time Member of the Economic

Regulation Authority of WA, and of

the National Competition Council.

Competition in the Online Environment 5

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Moderator

Simon Uthmeyer

Partner, DLA Piper

Simon is the leader of the DLA Piper

Competition & Regulation team.

Simon is known for his strategic

approach to competition and

access issues and his application of

industrial organisation economics to

legal issues.

Simon advises clients on all types

of competition law, access and

economic regulatory issues. He

has extensive M&A experience in

Australia and the United States,

and he has extensive experience

in advising merger parties and

the Australian Competition and

Consumer Commission (ACCC) on

merger clearance issues. He is an

external legal adviser to the ACCC’s

Mergers Branch.

For the past six years, Simon has

been listed as one of Australia’s

‘leading individuals’ in the area

of competition law by Asia Pacific

Legal 500, and in Best Lawyers in

2011, 2010, 2009 published by the

Australian Financial Review.

panelists

Graeme Samuel AC

Managing Director, Greenhill & Co. Australia

Graeme Samuel AC is a Managing

Director of Greenhill, a leading

independent investment bank.

Graeme is also a Vice Chancellor’s

Professorial Fellow in the Faculty of

Business and Economics, Monash

University. He is a member of the

Council of The Australian National

University.

Appointed to the position of

Chairman of the Australian

Competition and Consumer

Commission in 2003 and

subsequent appointment as

an Associate Member of the

Australian Communications and

Media Authority in 2007, both of

which positions he held until July

2011. Member of the National

Competition Council from 1995 and

President from 1997 to 2003.

Graeme holds a Bachelor of Laws

(Melbourne, 1968) and Master of

Laws (Monash, 1977).

In 1998 Graeme was appointed an

Officer in the General Division of the

Order of Australia. In 2010 Graeme

was elevated to a Companion in

the General Division of the Order

of Australia – for eminent service

to public administration through

contributions in the area of

economic reform and competition

law, and to the community through

leadership roles with sporting and

cultural organisations.

Dr Phillip Williams

Chairman, Frontier Economics

Philip’s key area of expertise is the

relationship between economics and

the law, and he provides economic

advice to clients in the areas of trade

practices, access disputes, valuing

damages, intellectual property and

contractual disputes.

Philip has advised the Australian

Competition Commission, the

National Competition Council

and the New Zealand Commerce

Commission - as well as all the

leading law firms in Australia and

New Zealand.

Prior to joining Frontier, he taught

full-time at the University of

Melbourne from 1978 to February

2002, when he resigned as Professor

of Law and Economics in the

Melbourne Business School at the

University.

Competition in the Online Environment 6

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Facing up to (virtual) reality:

meeting the online retail

challenge

There is no doubt that Australian retailers are facing

a profound challenge with the growing use of online

shopping. Bricks and mortar sales are down, internet

sales are up, and – particularly given the current

economic climate – some see a need for government

intervention to ‘level the playing field’.

When analysed closely, however, the ‘threat’ of

online retail is quite specific – consumers are very

willing to acquire certain retail products via the

internet, but not others. Further, it is hardly the

first time that Australian businesses have been

subject to sweeping change: e-commerce is, in some

respects, analogous to the gradual lifting of parallel

importation restrictions that has occurred over the

last decade or two.

When responding to the online retail challenge,

there is certainly a broad range of anti-competitive

responses available to Australian manufacturers and

their retailers, and indeed we can look to numerous

international and domestic cases and investigations to

learn what not to do.

There is also scope, however, to respond in a procompetitive

manner – and, in this regard, the Australian

competition law framework allows for some highly

effective solutions. Australian businesses have

significant scope to determine the manner in which

their products are distributed. The true challenge will

be to deliver to consumers more of what they want,

in the manner they want: to this end, the internet

must surely be more of an opportunity than a threat.

Nonetheless, where hands-on sales methods are

necessary (for whatever reason), Australian retailers are

in the fortunate position of enjoying a legal framework

that actively facilitates pro-competitive responses.

Researcher

Dr Alexandra Merrett

Senior Fellow, The University of Melbourne

Alexandra Merrett is an experienced

lawyer specialising in competition

and consumer law.

Between 2006-2012, she was

a senior enforcement lawyer for

the Australian Competition and

Consumer Commission working in

an advisory capacity and frequently

involved in complex litigation.

Prior to joining the ACCC, Alexandra

worked at a number of national

law firms, principally in the areas

of competition, commercial

and corporate law. Since 2006,

Alexandra has also been a

Senior Fellow at the University of

Melbourne, teaching competition

law subjects in the Melbourne Law

Masters programme.

Alexandra now works as a private

legal advisor exclusively in the areas

of competition and consumer law,

including mergers, trade practices

compliance training and audits.

Competition in the Online Environment 7

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Moderator

Dr Jill Walker

Commissioner, ACCC

Jill Walker was appointed as a

Commissioner of the ACCC in 2009.

Dr Walker is the Chair of the ACCC’s

Mergers Review Committee and

Adjudication Committee and is

also a member of the Enforcement

Committee. Dr Walker is also an

Associate Member of the New

Zealand Commerce Commission

and Chair of the International Air

Services Commission.

Dr Walker has extensive experience

in the fields of trade practices and

antitrust economics. Prior to joining

the ACCC, Dr Walker was a member

of the Australian Competition

Tribunal and worked as an economic

consultant for LECG Ltd. Dr Walker

has also worked for the Network

Economics Consulting Group (NECG)

and CRA International.

Dr Walker has previously been

employed as an economic adviser by

the ACCC and its predecessors and

provided advice on significant cases,

investigations, and authorisations.

Dr Walker holds a Bachelor of

Arts in Economics and a PhD in

Land Economy from the University

of Cambridge. She also holds a

Master’s degree in Economics from

the University of Massachusetts.

panelists

Dr Tom Hird

Director, Competition Economists Group

Tom is a founding director of CEG,

with 18 years of experience in the

economic analysis of markets and

in the provision of expert advice

in regulatory, litigation and policy

contexts.

Tom has a PhD in Economics and is

an Honorary Fellow of the Faculty

of Economics at Monash University

and is named by Global Competition

Review in its list of top competition

economists. Tom has worked in

economic consulting for the last

13 years and prior to that was a

senior officer in the Australian

Commonwealth Treasury.

In this time he has dealt with the

full range of policy and regulatory/

legal issues as they pertain to

economics. Tom has had expert

testimony accepted in court and in

numerous regulatory forums.

Scott Minehane

Managing Director, Windsor Place Consulting

Scott W Minehane is an

international regulatory and

strategy consultant in the

telecommunications sector and

has been involved in advising

investors, operators, Governments

and regulators in Australia, Asia,

the Pacific and South Africa for

over 20 years.

His expertise extends to policy,

legislation, regulation, spectrum

management, NBN and new

generation fixed and mobile

technologies.

He is the principal of Windsor

Place Consulting an independent

consultancy practice, through

which he has advised a range of

leading corporates. Scott is also a

Director of Etherstack an ASX listed

company that specialises in wireless

technology and Merchant Protect, a

company which allows merchants to

verify/authenticate card not present

and online credit card transactions.

Scott has a Bachelor of Economics

(1986) and a Bachelor of Laws

(1991) from the University

of Queensland and holds a

Master of Laws specialising in

Communications and Asian Law

from the University of Melbourne

(1998).

Competition in the Online Environment 8

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Platform competition and

measurability in online

advertising

Digital data has transformed the ability of advertisers to

assess the performance of their online search and display

advertising campaigns. This has lead to the creation of

new technology allowing ‘cross-channel’ attribution.

These technologies allow advertisers for the first time to

compare the performance of ads across different types

of advertising channels and assess which campaigns are

the most successful at achieving their goals.

This paper performs an empirical study of the impact

the measurability of returns on investment and

substitution across online advertising platforms has

on the prices paid by advertisers. Cross attribution

platforms allow advertisers to assess the relative

performance of different online (and offline) advertising

platforms, such as search, display, social and direct mail.

The analysis finds that the measurability of online

advertising allows people to gauge ad performance

resulting in an accurate assessment of the return on

investment. This, combined with cross attribution

between advertising platforms, substantially reduces

the cost of advertising by allowing people to use

refined targeting criteria to allocate campaign dollars

to advertising platforms that give the highest return on

investment. The overall results are strong competitive

outcomes between advertising platforms with marketdetermined

performance based pricing for advertisers.

This good for competition between platforms and

advertisers as it results in more conversions at a

lower price. However, there may be unforeseen

costs to policies that reduce the ability of advertisers

to measure the comparative performance of their

advertising. For instance, privacy regulation that

reduces the analytical ability of advertisers may result

in a lessening of competition, in turn higher prices for

ads, and ultimately reduced consumer welfare through

higher prices for goods.

Researcher

Professor Catherine Tucker, MIT Sloan

School of Management

Catherine Tucker is the Mark Hyman

Jr. Career Development Professor and

Associate Professor of Marketing at

MIT Sloan School of Management.

She specializes in understanding

how the huge amounts of data

generated by the information and

communication technology revolution

can better guide marketing and

advertising decisions.

Her research interests lie in how

technology allows firms to use digital

data to improve their operations and

marketing and in the challenges this

poses for regulations designed to

promote innovation.

She has particular expertise in

online advertising, digital health,

social media and electronic privacy.

Generally, most of her research lies

in the interface between Marketing,

Economics and Law.

She has received an NSF CAREER

award for her work on digital privacy

and a Garfield Award for her work on

electronic medical records. Dr. Tucker

is Associate Editor at Management

Science and a Research Associate

at the National Bureau of Economic

Research. She teaches MIT Sloan’s

course on Pricing and the EMBA

course Marketing Management for

the Senior Executive.

She holds a Ph.D in Economics from

Stanford University, and a BA from

Oxford University.

Competition in the Online Environment 9

---

Competition in the

Online Environment

Melbourne Business School

Wednesday 28 November 2012

Moderator

Ramin Marzbani

CEO, Smart Services CRC

Ramin Marzbani is a General

Partner at Indigo Venture Capital

Partners, based in Sydney, focusing

on seed and early stage technology

companies. Ramin is regarded as

a leading technology, Internet and

financial services analyst in Australia

and Asia.

Ramin was the CEO of www.consult

from 1995 to 2003 and oversaw

the transition of the company to

ACNielsen following sale of the

business in 2000.

Previously, Ramin had spent three

years as a consultant for Booz-

Allen & Hamilton and seven years

in various marketing, sales, head

office and finance positions at IBM

Australia and IBM India Offshore

Operations.

Ramin sits on the Board of several

investee companies such as Event

Zero and EffectiveMeasure. He

also sits on the Advisory Boards of

various institutions and companies

such as MIR Funds Management

and Investment Trends where he

continues to be active in various

consulting roles. He has over

the past years sat on the boards

of The Telstra Broadband Fund,

Fusia, Lazard Asia Pacific Asset

Management, Project GOTH,

Returnity and others.

Ramin holds a BE (Mechanical) from

UNSW and an MBA with Distinction

from the Australian Graduate School

of Management and NYU Stern.

panelists

Catherine de Fontenay

Melbourne Business School

Dr. Catherine de Fontenay received

her PhD in Economics from Stanford

University in 1998.

Since July 2003 she has been a

member of faculty at both the

Department of Economics and

the Melbourne Business School,

at the University of Melbourne.

Her two main interests are

Development Economics and

Industrial Organisation. In Industrial

Organisation, her research focuses

on negotiations between firms

and their suppliers, and how

mergers in an industry affect those

negotiations.

She also studies negotiations

in other contexts: she is part of

an ARC project to examine how

scientists collaborate within

laboratories, and how it impacts

on their career prospects. Another

area of research is on the effect

of market power on interlinked

markets in developing countries.

Jeremy Nicholas

CEO, BMF

Jeremy has worked in the UK,

Europe, USA and Japan as a

Strategic Planner. He joined BMF in

2001 and has played a key part in

the agency’s growth from 30 to over

200 employees.

After nine years with the agency,

Jeremy became BMF’s CEO in

August 2010 to lead the agency into

its next exciting decade.

Jeremy is board member of

A-League Club, Sydney FC and

is a former Chair of the Account

Planning Group and Deputy Chair of

The Communications Council.

Competition in the Online Environment 10