Andrew Leigh

E&OE TRANSCRIPT
RADIO INTERVIEW
ABC SATURDAY EXTRA WITH GERALDINE DOOGUE
SATURDAY, 3 DECEMBER 2022

SUBJECTS: Competition policy, economic dynamism, tourism and accommodation consultation on price parity clauses, ACCC digital platforms inquiry.

GERALDINE DOOGUE (HOST): Well, we all know how time-consuming and frustrating it can be searching around online for the best rates for a hotel room or flight. Sometimes we're left scratching our heads, as every platform seems to be offering the same rate, give or take a dollar, even the hotel's own website. Well a new Federal Government review is looking at this exact phenomenon, which is called a price parity clause. That's where a hotel cannot offer rooms at a lower price than those on the platform to which it's contracted. These clauses may well be anticompetitive, with consumers adversely affected. To talk us through the review's objectives and for a fuller understanding of reforms that may be necessary in the competition space, I'm pleased to welcome back to the programme Dr Andrew Leigh, the Assistant Minister for Competition, Charities and Treasury. Welcome back, Andrew.

ASSISTANT MINISTER FOR COMPETITION, CHARITIES AND TREASURY ANDREW LEIGH: Thanks, Geraldine, great to be chatting with you.

DOOGUE: How widespread are these price parity clauses in Australia and overseas?

LEIGH: We think they're pretty widespread, but that's the purpose of the consultation, to find out the extent of them. Certainly when I chat to small hotel providers, they say, look, we wouldn't mind if there was just a couple of percent that we're paying to booking.com or Expedia, but sometimes they say these platforms are charging them double digit fees. Now, that's a rate being charged for someone that doesn't clean the toilets, doesn't change out the sheets, doesn't help on the front desk. If those large online multinational platforms are charging a big fee and then they're turning around and telling the hotel "well you've got to offer at least as good a price directly through us as you do for people who book direct," then they may be abusing their monopoly power. So we need to get to the bottom of it, we need to find out what's going on for the sake of tourists and for hotel operators themselves.

DOOGUE: I know submissions to the government's consultation have just opened and I think they'll be open until January 6. Is that right? For anyone?

LEIGH: Yes, that's right.

DOOGUE: Do we have an idea of how, in particular, smaller hotels who might otherwise mark down rooms, they're the ones I imagine are in the gun here at the last minute to secure bookings. Is that all not possible?

LEIGH: Yes. The risk of the price parity clause is that the big platform says to the small hotel, "if you offer the best deal for people who book direct, then we won't list you on our service". Or maybe they do something a bit more cunning. They list the hotel on the service, but then when you search through local hotels, they drop that hotel to the bottom of the search ranking, so they're effectively invisible. If the big platforms are throwing their weight around like that, that strikes me as pretty unfair, because the hotel industry has been going through a really tough couple of years. They've been hit for six through COVID and what they need is every possible dollar going to the bottom line, rather than having to pay a big chunk of change to an offshore booking platform.

DOOGUE: And then there's the impact on the consumer. I mean, is this just in accommodation, or does this happen with flights and car rentals and so on?

LEIGH: Well, it's certainly a live question, and the competition watchdog has been doing a power of work looking at digital platforms and how they are acting increasingly as gatekeepers to the economy. They're not just another tech firm. Increasingly, the risk is that if you're a Webjet or Facebook, if you're a Google, if you're an Apple App Store, that you're standing atop a whole other sector of the economy. And for somebody who cares really deeply about the ability of small business to get ahead, I'm worried about the role that these platforms play. I want to see the competition watchdog making sure we've updated the rules to keep pace for a changing economy.

DOOGUE: And just before we get into that broader review, what can you do about it? Say you do find that - the government has got the capacity, has it, to intervene basically?

LEIGH: Yeah, the ACCC's recent digital platforms review made a couple of recommendations. First of all, they said that there should be a ban on unfair trading practices, which is a sort of broad prohibition on throwing your weight around in unfair ways. And then they said there should be platform specific regulations. So specific regulations that go to how Google operates in search, where it's got 95% of the market; how Facebook operates in social media – with the average Australian spending half an hour a day on Facebook; how Apple operates in its App Store, with Apple having half the market in smartphones. So it may be appropriate to go down that path. We're consulting on that at the moment.

DOOGUE: Is this the sort of data advantages and anticompetitive self-preferencing? I think this is your digital platform services, that was what the ACCC handed down. That's what you're referring to there, because those words are sort of, I think, those phrases are new for us.

LEIGH: Yes, that's right. It may be self-preferencing, Geraldine, or it may just be that they're charging more than they would in a competitive market where there are a range of different gatekeepers. We know the standard story of monopolies. Once you're the big dog in the market, then you drive up your prices, while quantity and quality go down. So the risk is that these platforms are behaving in a way in which traditional monopolists have behaved in the past, and then it's appropriate for government to step in on the side of consumers.

DOOGUE: I mean, you've recently given a number of interesting speeches, Andrew Leigh, at universities calling for wide ranging reform of competition law. You say Australia's become less competitive in recent years. Why has this happened? I mean, we have a watchdog there. How has this happened?

LEIGH: Yes, let's go first to the statistics. We've seen a drop in the number of start-up businesses over the last couple of decades and we've seen an increase in market concentration. So this isn't just supermarkets and banks, it's also baby food and beer. We're seeing increasing numbers of Australian industries with just a couple of big players that are dominating. That's flowed through them to markups, which is the gap between what cost to produce and what a firm charges customers. Those markups appear to have grown over recent years, so I'm worried that that could be bad not only for consumers, but also for the whole competitive ecosystem, because productivity growth ultimately is the main driver of living standards. We're more productive than people were at the time of Federation because we have better technology and we're able to do things quicker. And that's why the typical Australian worker now earns more in a day than someone at Federation earned in a week. We got to keep that productivity engine going and competition is key to that.

DOOGUE: Well, we had the big Fred Hilmer national competition policy reforms of the 1990s, didn't we? Do they need reviving or are they lapsing? Are they not fit for purpose, would you say now?

LEIGH: I’m glad you bring up Fred Hilmer's reforms because that's 30 years ago now and something that I believe we can learn a lot from. Those reforms turbocharged the Australian economy during the 1990s and on one estimate put around $5,000 a year into the pockets to the typical Australian household. And they did that by making sure that monopolies were appropriately regulated and ensuring that we didn't have regulations that were unnecessary, such as baking regulations that said what time of the day a baker could bake their bread. Those reforms were important to the Australian economy. But of course, you can't invent the Hills Hoist a second time. What we've got to do now has to do much more with encouraging green technology, recognising the challenge in the digital space. It means being inspired in a political sense by what the Hilmer reforms and Paul Keating did in that period in the 1990s, but recognising that we've got fresh new challenges facing us right now.

DOOGUE: It is interesting when you've been looking at a couple of, what you have been saying around the place, and you make the point that not everyone will like the idea of a more competitive economy, and that Rod Sims, the former head of the ACCC, liked to say that competition policy was the inverse of corporate strategy. That actually, if you're sitting around a boardroom, you're not encouraging competition, that's the last thing you're doing. You're basically you want to stand there in the market alone and get all the customers.

LEIGH: That's absolutely right. I love that line from Rod.

DOOGUE: It's very cute, isn't?

LEIGH: He points to people like Michael Porter, the business strategy guru, and he says, what are folks like that trying to do? They're trying to say to large firms "the quickest way to profit is to build a moat around you, keep out your competitors, make it clear that it's not worth anyone starting up another firm to take you on". That might be good for the monopolists and for their shareholders, but it's bad for the economy and it's bad for consumers. That's one area in which sometimes monopolists and economists part company. Economists recognise that there is a huge value to be gained for the economy if we can just unlock those new firms that will take on the incumbents. We need, particularly in the digital space, firms that are starting up not with the aspiration of being bought out one day by a big firm, but by the aspiration of actually continuing to compete and giving consumers more choice.

DOOGUE: Well, privatised monopolies, another thing you're focusing on or alert us to, privatised monopolies can be dangerous. And that goes to the question of energy consumption too, which we're talking about after eight. This whole and as you know, the whole business of re-putting the SEC back into government hands that Dan Andrews clearly did very well with. So what's the issue? Yes, the way in which one becomes more competitive is quite important too, isn't it?

LEIGH: Absolutely. The insight from this is that the mark of success of a privatisation has got to be more than the sale price. So if you close off regulation, close off competition, and you allow prices to rise, then what you've done might seem savvy in the short term, but it's foolish in the long term. Effectively, you're imposing a multi-decade tax on consumers in the future - who pay higher fees for a privatised monopoly. We're going to get smarter about how we have monopolies privatised. Increasingly, I think the public has moved to recognise that if you're seeing a state government selling off an asset, you've got to think really hard about how that's going to affect the market in the future.

DOOGUE: Look, many of the reforms you want to see cross into state laws, how difficult is it to get this type of coordinated national reform that I think you're tilting at?

LEIGH: That was the genius of National Competition Policy. It really did bring the states on board and recognise that if you look at the Constitution, it doesn't clearly allocate competition powers to either the state or to the federal government. It's an area of cooperation. And it's another reason why it's really important to have federalism working well, why Anthony Albanese and Jim Chalmers have placed so much emphasis on engaging with states and territories, getting that cooperation that transcends party lines. I don't think competition is a strongly partisan issue, Geraldine. I really do think it's one of those practical measures where we can get a lot done in a federation, making sure that the states and territories are looking at competition issues when they're doing privatisation, when they're doing regulation. And that if we're, for example, regulating liquor licences, we're looking very clearly at the consumer harms and making sure that we're not entrenching monopolies there.

DOOGUE: But you're also talking about sort of restrictive zoning laws and state housing taxes. And when I say little things, quotes, quotes. So you really are, that's tricky politics.

LEIGH: They're little things that add up to big things. So if you take that $5,000 a year that Fred Hilmer and Paul Keating managed to put in our pockets, that's the sort of gain that we're talking about. From a concentrated focus on competition policy, the details can seem complicated, but the big picture is that the Australian economy is less dynamic - fewer startups, more market concentration, more markups than 20 years ago. So we've got to get innovation, we've got to get productivity growth going after the lousiest decade of productivity growth in the postwar era. Competition is at the heart of a dynamic economy. I look around the world at other places that are focused on this. The Biden administration is now much more focused on competition policy than the Obama administration was a decade ago. And the economics profession, where I hail from, is broadly recognising that markets have gotten too concentrated over recent decades and that this is a central challenge for anyone that cares about boosting economic growth.

DOOGUE: If you could tackle one big reform then, maybe this is the final question, what would it be?

LEIGH: I think it would be in the digital platform space. These digital platforms really are the railroads of the 21st century. They are the gatekeepers to so much of the economy. If we can make sure we get regulation right around them, then it matters for so many businesses. So think about all of the small businesses that are selling through eBay. Think about all of the software designers that are designing for the App Store. Think about all of the businesses that want to sell through placing ads on Google. We need these platforms to be working in the interest of the Australian economy. We get that right and I think we unlock a whole lot of growth and inspiration. And one of the things I really hope we can do too is to be unlocking inspiration in disadvantaged communities. So as an egalitarian, it really matters to me that we're seeing innovation not just happening in the leafier suburbs, but in vulnerable places as well. More competition should mean more startups from those who have the least right now.

DOOGUE: Yes, that was definitely part of the discussion at this conference about the renewable energy as to what it could do for communities that don't usually consider themselves part of change.

LEIGH: Exactly.

DOOGUE: Very interesting. Thank you very much for joining us.

LEIGH: Always a pleasure Geraldine, thank you.

DOOGUE: Dr Andrew Leigh, the Assistant Minister for Competition, Charities and Treasury.