Concerning issues for consumers and sellers on online marketplaces

ACCC

An ACCC report examining general online retail marketplaces, such as Amazon Australia, Catch, eBay Australia and Kogan, has highlighted a range of concerns about how they operate as well as the significant benefits they provide to consumers and sellers.

Online marketplaces provide a low-cost way for sellers to enter the market and give consumers a greater choice of goods.

Concerns include the use of algorithms to decide how products are ranked and displayed (including some marketplaces giving preference to their own products), the collection and use of consumer data, inadequate dispute resolution processes and a need for more consumer protections.

The ACCC’s fourth report in its Digital Platform Services Inquiry examined whether online marketplaces are promoting fair and competitive markets for consumers and sellers. It found that online marketplaces have a high level of control and involvement in transactions between consumers and sellers on their platforms.

“Online marketplaces have an important role in connecting Australian consumers and sellers, and make up a growing share of consumer sales. But we are concerned about their impact on both consumers and third-party sellers who rely on online marketplaces to reach their customers,” ACCC Chair Gina Cass-Gottlieb said.

The report highlights consumers’ and sellers’ concerns about the way online marketplaces display and rank products to consumers on the platform.

“Online marketplaces need to be more transparent with consumers and sellers about how they operate. For example, they should explain to consumers and sellers why their search functions and other tools promote some products over others,” Ms Cass-Gottlieb said.

“We are particularly concerned about so-called hybrid marketplaces, which sell their own products in competition with third-party sellers that use their platform. Hybrid marketplaces, like other vertically-integrated digital platforms, face conflicts of interest and may act in ways that advantage their own products with potentially adverse effects for third-party sellers and consumers.”

Marketplaces have deployed ranking algorithms and other practices which have a significant impact on the purchasing decisions of consumers. These algorithms and practices can be used to provide preferential treatment to the hybrid marketplaces’ own products.

“We have concerns about particular examples of self-preferencing by hybrid marketplaces in Australia, which mirror similar concerns raised by overseas regulators,” Ms Cass-Gottlieb said.

The report highlights the large amounts of consumer data collected and used by online marketplaces, which may not align with the privacy preferences or expectations of many consumers.

“We believe consumers should be given more information about, and control over, how online marketplaces collect and use their data,” Ms Cass-Gottlieb said.

“Given the important intermediary role performed by online marketplaces between consumers and sellers, it is also important that marketplaces have protections in place for consumers using their services.”

For example, some marketplaces have joined the voluntary Product Safety Pledge which provides consumers with additional protections including commitments from signatories to remove listings of unsafe products within two business days. The ACCC encourages other online marketplaces to join the Product Safety Pledge to further strengthen online marketplace safety.

The report also raised concerns about the lack of dispute resolution mechanisms.

“We continue to support a minimum internal dispute resolution requirement for digital platforms and the establishment of an ombudsman scheme to resolve consumer and business complaints, as recommended by our original Digital platforms inquiry final report,” Ms Cass-Gottlieb said.

“Other measures supported by the ACCC, including a prohibition on certain unfair trading practices, introducing a general safety provision, and making unfair contract terms illegal, could help address other issues identified in this report.”

The report notes that none of the online marketplaces has reached a dominant position in Australia, unlike in other countries, but that there is potential for the market to ‘tip’ in favour of a single dominant marketplace. The ACCC would have significant concerns if tipping leads to a dominant marketplace behaving anti-competitively or reducing the benefits consumers and sellers would otherwise gain from competition.

The report notes that Amazon Australia’s sales remains significantly lower than eBay Australia’s and also well below the sales of many large Australian online retailers such as Big W, David Jones, Kmart, Myer or Target. But while sales through all four leading online marketplaces in Australia are growing, Amazon Australia’s sales are growing faster than the other platforms. In its fifth Digital Platform Services Inquiry report, the ACCC is considering whether Australia needs a new regulatory framework to address competition and consumer concerns with digital platform services more broadly.

“Any such framework should be able to be applied to an online marketplace if it reaches a position where it is could exercise a certain level of market power or, potentially, act as a gatekeeper between businesses and consumers,” Ms Cass-Gottlieb said.

The full report is available at Digital platform service inquiry 2020-2025 – March 2022 interim report.

Note

This report focusses on the four major online retail marketplaces in Australia, Amazon Australia, Catch, eBay Australia and Kogan. In 2020-21, they jointly had total of $8.4 billion, an increase of 21 per cent compared to 2019-20.

A chart showing the total sales of the 4 major online marketplaces in 2019-20 and 2020-21. For 2019-20, Amazon Australia had $692 million, Catch had $663 million, eBay Australia had $5 billion and Kogan had $611 million. For 2020-21, Amazon Australia had

Chart1: Total sales of the four major marketplaces, 2019-20 and 2020-21

Background

On 10 February 2020, the Australian Government directed the ACCC to conduct a five-year inquiry into markets for the supply of digital platform services in Australia and their impacts on competition and consumers. This inquiry will report to the Treasurer every six months and will examine digital platform services including their advertising services and data brokers until the conclusion of the inquiry in March 2025.

This report focuses on general online retail marketplaces and is the fourth report produced under this direction. Online marketplaces are those that display a broad range of products to consumers, such as books, toys, clothing, sporting goods and camping equipment. They also provide services to sellers (such as advertisements). Major Australian online marketplaces include Amazon Australia, Catch, eBay Australia and Kogan.

For the purposes of this report, a distinction is made between online marketplaces and physical retailers that operate online (like Big W, David Jones, Kmart, Myer and Target). Online marketplaces facilitate transactions between third-party sellers and consumers on a common platform. While physical retailers operating online act as a seller. There is also a distinction between online marketplaces and online classified ad platforms (like Gumtree or Facebook Marketplace). This is because online classified ad platforms do not allow transactions to be completed through their platform, while online marketplaces require this.

The Product Safety Pledge is a voluntary initiative developed by the ACCC in collaboration with some online marketplaces which aims to protect consumers from unsafe products through several key commitments.

The fifth report, focussing on competition and consumer issues raised in the course of the Digital Platform Services Inquiry, the Digital Advertising Services Inquiry and the Digital Platforms Inquiry (2017-2019) to date, and whether specific ex-ante rules should apply to digital platform markets, is due to the Treasurer by 30 September 2022. The ACCC released a discussion paper on 28 February 2022.

The ACCC concluded a separate inquiry into markets for the supply of digital advertising services. The final report of that inquiry was published on 28 September 2021.

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