The internet and the ‘Oops’ in Australia’s merger laws

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With the growth of the internet it was inevitable. Two internet companies, both based outside Australia, are likely to merge and this may substantially lessen competition in a market in Australia. And there is not much our Competition laws can do about it.

US based Amazon is looking to take over British-based The Book Depository. It is reported here. At a guess, these are the two largest internet book sellers in Australia. So the acquisition may potentially substantially lessen competition in a market in Australia (possibly a retail book market but there are lots of facts that would be needed to verify this).

The key point, however, is that, even though this situation is envisaged by our laws, and even though this type of merger is likely to become more common as internet trade grows, there is not much we can do about it. Indeed, the only remedy under s.50A of the Competition and Consumer Act is to stop Amazon/The Book Depository from trading in Australia. This doesn’t seem like a very useful remedy.

The key problem is that we have no leverage. Neither company actually carries out activities here. We can’t do a Schweppes-type solution (where brands had to be divested in Australia but not overseas) because there is nothing to divest.

So if the lawyers can think up any innovative solutions I will be grateful, because I suspect this national-level impotence will become increasingly common.

8 Responses to "The internet and the ‘Oops’ in Australia’s merger laws"
  1. I wonder if it’s really a new problem. During the 90’s there were a lot of mergers among American and European aerospace/defence firms. I don’t know if it affected competition here, but if it did there wasn’t much we could do about it.
    At least internet book retailing is a contestable market.

  2. Umm, doesn’t it have to be the case that Amazon and this other mob well not be constrained be competition globally? Hard to believe Australia was a big enough source of demand.

  3. This merger may or may not substantially lessen competition. The point is that national merger laws (particularly for small countries like Australia) become increasingly impotent in a world of internet-based trade.

  4. The problem for consumers is not inherently whether the market structure for online book sellers appears ‘monopoly like’, but whether prices subsequently rise or fall. 
    I would say that each of them is already such a monolith that the merger would not change the global market structure significantly. 
    And Australia could just be considered as a single ‘suburb’ in this global market – and I’ve never heard of competition law being wielded enacted on that basis.
    I also agree with Joshua Gans that Australia benefits from competitors in all countries.  There are also low barriers to entry (relatively speaking) for internet book shops, so there is always a huge threat of competition.

  5. Not certain how international treaty may help, as companies may always set up their legal entities in jurisdictions beyond the reach of such treaty. 

    Also say if an Australian buys a book from Amazon, how do we expect the Government/Custom Office to detect/stop the transaction, without heavily scrutinising the net?  

    Another issue is a traditional economic question — “what is the market?”  Are we talking about “book market within Australia” or “book market worldwide” or “book market on the internet”?  I suspect they yield very different results.

  6. Based on a ‘potential’ reduction of competition in one economic entity, caused by the merger of entities in TWO different jurisdictions, you want to enact yet more legal contraints in a THIRD economic entity ?

    Apart from the potential for any ‘potential’ savings being taken up by scum sucking rent seekers (sorry, that should read lawyers), which do you think is easier, for such merged entities to 
    a) comply with all applicable laws in all countries, or
    b) comply with all applicable laws in all countries they want to trade in ?

    Your first clue is that answer a is wrong. Enacting local legislation that is generalist enough to cover all these kinds of situations would simply result in organisations such as the merged Amazon / Book Depository refusing to serve the Australian market.

    BTW, if you ARE concerned about availability and competition, please consider working and publishing on the dangers and costs of DRM and geo restricted copyright sales. 

  7. “There are also low barriers to entry (relatively speaking) for internet book shops, so there is always a huge threat of competition.” – Cameron
    I’m not so sure – Amazon and the Book Depository combined will have a lot of clout with publishers. They’ll use that to give newcomers a hard time.  All supposedly illegal under US, UK and Australian laws – but look how hard it has been to stop Microsoft doing much worse.
    I think Amazon’s offer price will have expected profits from market power built in.

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