New CEPR Policy Insight - The ACCC’s ‘bargaining code’: A path towards ‘decentralised regulation’ of dominant digital platforms?

Monday, September 14, 2020

Could an innovative solution solve a controversial content dispute between publishers and digital platforms and pave the way for a new model of regulation? 

The Australian Competition and Consumer Commission (ACCC) has proposed new legislation to establish a Mandatory Bargaining Code, which seeks to address concerns that Google and Facebook do not adequately compensate Australia’s traditional media companies for use of their content. The proposal involves an obligation for the two sides to reach a bargained solution for a payment in favour of publishers, which reflects a policy view that the large disparity in bargaining power between digital platforms and individual publishers requires positive intervention to support quality journalism and news production.

The legislation includes the use of ‘final offer arbitration’ as a backstop, in line with bargaining theory.  It also leaves implementation of the regulation to the parties involved, not to an agency suffering from extreme asymmetric information.

A new CEPR Policy Insight from Cristina Caffarra, Vice President and Head of European Competition, Charles River Associates, and Gregory Crawford, Professor of Economics, University of Zurich; Co-Director of the Industrial Organization Programme, CEPR, assesses the wider implications of the Bargaining Code and argues that at a time when the design of regulation for ‘gatekeeper’ platforms is very much top of the agenda, this ‘decentralised regulation’ approach could be a game-changer for the relationship between the publishing industry and digital platforms worldwide.

The draft code would allow news media businesses to bargain individually or collectively with Google and Facebook over payment for the inclusion of news on their services. The code also includes a set of ‘minimum standards’ for: Providing advance notice of changes to algorithmic ranking and presentation of news; Appropriately recognising original news content; Providing information about how and when Google and Facebook make available user data collected through users’ interactions with news content. 

Available for download here >>>

"There is a strong economic rationale to funnelling more of the joint value created by the consumption on news on dominant digital platforms to publishers. And because of the disparity in bargaining power, this needs to be mandatory”

Letting the size of the payment be bargained between the two sides (with an arbitrator as backstop), encourages reasonable valuations to emerge on both sides and is more beneficial than having a government (or its appointed regulator) set a potentially arbitrary and inefficiently uniform ‘tax’. A regulator cannot comprehensively understand the economics of a single industry as well as the firms it is mandated to regulate. This form of ‘decentralised regulation’ shows promise as a worthwhile option in the design of future regulatory options for addressing the dominance of digital platforms in many settings. 

Concerns that the move is a shakedown of Google and Facebook by Australian news corporations are unfounded, argue the authors. Although digital platforms make little or no advertising revenues directly from displaying news content, the economic benefit of displaying news is clearly more complex. There are other sources of value created for them in the relationship, including gathering information on consumer preferences for online ad sales and keeping consumers inside their ecosystem by pre-empting publishers from creating direct relationships with readers. Publishers typically have no idea about how much data digital platforms collect on their users, and what use they make of them. The draft Bill grants to both sides information gathering powers to allow them to gauge the benefits (direct and indirect) to digital platforms of using news content and the costs to publishers of producing news. 

"One thing is clear: change is coming to the way in which large digital platforms are going to manage the relationship with third parties that are subject to their rules. We feel that ‘decentralised regulation’ inspired by the ACCC’s Mandatory Bargaining Code can be one part of the set of possible solutions”

You can also read a Vox Column here >>>

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