Rhea Choudhary is a guest writer for the Warwick Economics Summit Blog, and is an Economics Honours student at the University of Melbourne.
The global view of digital platforms like Facebook and Google is rapidly changing: the adverse consequences of Big Tech’s operations are continually being exposed in full view, prompting lawmakers to scrap their trust in their ‘self-regulation’ promises and focus on more targeted regulatory action.
The Australian Consumer and Competition Commission (ACCC), Australia’s competition regulator and fair trade champion, is the latest organisation to reassess the impact of Big Tech on users. It has recently completed and tabled with Parliament a landmark News Media Bargaining Code designed to address bargaining power imbalances between Australian news media businesses and digital platforms, specifically Google and Facebook.
Some Australian experts see this code as likely to be passed by the Australian government, which would make it the first successful attempt to regulate Big Tech. The Australian Government’s legislative response to the ACCC’s code and the effectiveness of its policies are therefore being closely watched around the world in the hopes that it could be replicated elsewhere.
There is consensus among experts around the world that the egalitarian business model of companies like Facebook and Google has led to adverse outcomes for advertisers, as no individual advertiser has the ability to influence Facebook with the choice to use their business. This particularly affects news outlets as that their business model relies heavily on advertising revenue.
Tech giants like Facebook also wield considerable monopolistic market power because of the network effect associated with their service: this arises because an individual’s decision to use a platform like Facebook is contingent upon how many people in their network already use that service. Therefore, new entrants to this market have immense barriers to entry, because they require a sufficient number of people to sign up with them in order for others to join.
Their monopolistic market power means that, in a digital age, advertising on their platform is not a choice but a necessity. These factors combined mean that there is a fundamental negotiating power imbalance that affects all businesses and suppliers, including news outlets.
While the ACCC is concurrently conducting a Digital Platforms inquiry to assess these wider-scale externalities associated with digital platforms, the push for a distinct news-centred code has arisen due to their findings demonstrating that digital platforms have both the capacity and incentive to atomise news and information which in turn can polarise, misinform and bias consumers. The extent of their power to control news has already been demonstrated: on the 13th of January this year Google admitted to performing ‘experiments’ on their search engine where select Australian news sites effectively disappeared from search results.
Increasing the transparency of the News Feed algorithm used by digital platforms that affect user traffic to media sites, as well as transparency regarding how paywalled news content are treated compared to free news; and
Ensuring that ranking algorithms appropriately weight original news content and the site which first ‘broke’ a particular news story, to preserve investigative journalism and its ability to appropriately monetise their content.
Perhaps most significant is the recommendation regarding the sharing of revenue earned by Big Tech specifically as a result of their inclusion of news on their platforms. Specifically, where digital platforms obtain value directly or indirectly from content produced by news media businesses, to fairly negotiate with them as to how that revenue should be shared, or how they should be compensated. This is designed to compensate news companies for example, for additional revenue earned by digital platforms that can be reasonably attributed to their news being shared on their platform.
The biggest criticism of preserving media outlets is that due to them historically relying on advertising revenue, any government intervention could be supporting a failed business model. However, economists argue that news and information are public goods -- this is because no individual person can prevent another from consuming them (non-excludability), and one person’s consumption doesn’t preclude another from doing the same (non-rivalrous). News outlets have been able to monetise information through advertising revenue; without it, they could not purely through subscriptions pay for the journalism that generates reliable public-interest information that has positive outcomes for society. This is specifically why governments need to intervene in these markets - not for financial gain, but to preserve the social gains they provide to society.
A demonstration of this social good is a study published in the Journal of Public Economics, which found that increased exposure to broadcast TV has a causal effect in reducing ideological extremism. Reducing ideological extremism, particularly when it grows into violence, has both logical and quantifiable benefits to society: research highlights that the fear of acts of extremist violence reduces social cohesion and trust. When there exists low social trust, given that it has been found to be at least as good a predictor of future growth rates as human capital, there are quantifiable economic consequences.
The ACCC’s News Media Bargaining Code is a concrete example of a changing view of Big Tech — that they aren’t as self-regulating as they claim to be and require intricate, holistic regulation to address new forms of externalities and preserve the fundamental pillars of modern democracies.