Digital Platform Services Inquiry Third Interim Report – introducing choice screens in general search services

A number of key recommendations 8 min read

The ACCC recently published its third Digital Platform Services Inquiry Interim Report (Choice Screen Report) as part of its ongoing role monitoring the impact of digital platforms on competition and consumers.

The Choice Screen Report focuses on the impact of pre-installation and default arrangements on competition and consumer choice in the supply of web browsers and general search services. It also assesses the effectiveness of choice screens in addressing the identified competition and consumer harms.

The Interim Report makes a number of key recommendations, building on previous ones from its Digital Platforms Inquiry Final Report ( DPI Final Report), earlier Digital Platform Services Inquiry (DPSI) Interim Reports, and the Digital Advertising Services Inquiry Final Report (Ad Tech Report).

Key takeaways 

• The Choice Screen Report focuses on the conduct of the largest vertically integrated search engine: Google. The ACCC considers Google has leveraged its dominant position in operating systems, app distribution and web browsers to foreclose access for rival search engines to important search access points.
• The regulator considers access to consumers is particularly important in search markets, as they are subject to customer inertia driven by default bias, economies of scale and network effects.
• In the ACCC's view, information asymmetries are leading consumers to remain with their pre-installed browser or default search engine, as they either lack the technical know-how to switch, or are not aware of alternative suppliers to switch to.
• The regulator recommends it be given the power to develop a mandatory choice screen in Australia, together with other sector-specific rules to address consumer choice and competition harms in search services.
• The ACCC also intends to consult on a regulatory regime that would apply to digital platform markets more broadly. This consultation will commence in early 2022, as part of its DPSI.

Background - taking Europe's lead

In June 2019, the ACCC released its DPI Final Report, which considered the impact of online search engines, social media and digital content aggregators on competition in the media and advertising services markets. It recommended that Google introduce a choice screen for Australian Android users similar to the choice screen rolled out to existing Android users in Europe.

Following the release of the DPI Final Report, the Federal Government directed the ACCC to monitor the rollout of the Android choice screen in Europe and report back in 2021. The ACCC's Choice Screen Report revisits this recommendation, and provides advice to the Government on Google’s rollout of a search engine choice screen on new Android devices in Europe.

Competition assessment

Google's dominance in search services

The ACCC built on previous findings in its DPI Final Report, DPSI First Interim Report on search engine services and the DPSI Second Interim Report on the supply of mobile operating systems and mobile app distribution to support its finding that Google is able to leverage its dominant position across multiple markets to foreclose access for rival search engines to important search access points .

The Choice Screen Report found that Google is the dominant provider of search services in Australia, with a 94% market share, occupying the position of pre-set default search engine on the majority of web browsers and other search access points on mobile operating systems. It considered that Google's position as the pre-set default search engine was due to its:

• vertical integration with Google Chrome and the Android operating system;
• commercial arrangements with competing web browsers, including Apple Safari; and
• commercial arrangements with other OEMs that use the Android operating system.

The ACCC found that, when considered cumulatively, Google's vertical integration and commercial arrangements resulted in a limited ability for rival search engines to gain access to consumers through default arrangements with browsers or OEMs.

Economics of scale and multi-sided network effects

The ACCC considered that access to consumers is particularly important in markets, such as search services, that are subject to economies of scale and network effects. The Choice Screens Report found that the multi-sided nature of search markets drives cross-side network effects. This process occurs in a number of stages:.

• Vertical integration of web browsers and search engines, together with commercial arrangements for default status at key search access points, provide certain search services with access to a large consumer base.
• The large scale of consumers on one side of the market attracts advertisers on the other side of the market, as they generally receive a better return on their campaign investments.
• The presence of a large number of advertisers then incentivises browsers to set default general search services that monetise the best, so that they are able to negotiate a share of the advertising revenue.

The ACCC also found that economies of scale increase the amount of data available to search engines, allowing their search algorithms to learn faster and generally provide better-quality results to consumers. The regulator considers these cross-network effects demonstrate the importance of gaining access to consumers at key search access points in order to drive scale and compete effectively. The ACCC found Google's dominant market position gives it an advantage, in its ability to improve the relevance of search results compared with competing search engines.

Impacts on consumer choice

A key focus of the Choice Screen Report was the potential consumer harms posed by lack of competition in search services. While the ACCC considered there may be benefits to pre-installation and default settings in some instances, it also found:

• Default bias and consumer inertia results in many consumers remaining with their pre-installed browser or default search engine, as they may face switching costs, such as the time taken to research alternative suppliers or learning how to switch to an alternative supplier.
• Information asymmetries may also lead consumers to remain with their pre-installed browser or default search engine, as they either lack the technical know-how to switch their browser and/or search engine or are not aware of alternative suppliers to switch to.
• Choice architecture and dark patterns (ie the design of user interfaces that appeals to certain behavioural biases) may impact individual autonomy and be used to limit consumer choice by suggesting consumers make certain choices, or by obscuring available choices, making it difficult for consumers to exercise their choice. In particular, these techniques may be used to make it more difficult for consumers to switch away from their pre-installed browser or default search engine.

In light of the above, the ACCC recommended expanding its recommendations from the DPI Final Report relating to the need for improved digital media literacy among Australian consumers. In particular, it recommended that consumers be informed about how platforms operate and use consumer data, and be provided with information about alternative suppliers, and how to switch between services and avoid harm occurring on platforms.

The ACCC has also increased its scrutiny of choice architecture and dark patterns and its impact on consumers. It was recently successful in its proceedings against Google, where the Federal Court found that the company had engaged in misleading conduct and made false representations to some of its users as to the way it presented information on its display regarding the collection, storage and use of users' personal location data. This case has significant implications for how businesses should display information to users, which is discussed in more detail in our recent Insight.

Reform on the horizon

Introduction of a mandatory choice screen

The ACCC reaffirmed its earlier recommendation from the DPI Final Report that Google introduce a choice screen in Australia, considering that a mandatory choice screen would address the impact of Google's vertical integration and commercial arrangements outlined above. The ACCC considered that before the choice screen is introduced, it should be subject to consultation with industry participants and consumers to ensure its efficacy. While the regulator only recommended that a choice screen be introduced on new and existing Android mobile devices, it recommended that it be empowered to mandate the implementation of a choice screen on other devices and operating systems in the future.

Search sector-specific regulation

The ACCC recommended that it be given the power to implement sector-specific regulation beyond choice screens, as required to address consumer harms and facilitate competition in search services. It considered that these measures would apply to a search engine provider that meets certain criteria, and could include:

• restrictions on tying and bundling search services with other goods or services (eg a web browser or operating system);
• paying for certain default positions;
• a requirement to provide access to click-and-query data to competing search engines; or
• a requirement to provide syndicated search results to competing search engines on fair, reasonable and non-discriminatory terms.

Digital platform markets regulation

The ACCC noted that the recommendations proposed in the Choice Screen Report sit alongside the rules and powers proposed in the Ad Tech Report and earlier DPSI Interim Reports.

In particular, the ACCC reaffirmed its intention to commence consultation on a broader regulatory framework to address issues across digital platform markets in early 2022, as part of the DPSI. Introduction of digital platform-specific rules would align Australia with other countries that have introduced, or are planning to introduce, digital platform-specific regulation.