Australia's Digital Market Regulation: An Evidence-Backed Review

I. Setting the Stage

Today, Australia faces a challenge common to many middle powers with open economies: How to promote a thriving digital sector while ensuring fair competition and maintaining vital innovation partnerships? In December 2024, Australia’s Treasury released a proposal paper outlining a new digital competition regime designed to promote effective competition and unlock innovation, lower prices, and better services for Australian consumers and businesses. The proposed framework would establish upfront obligations for certain designated digital platforms with a critical position in the Australian economy.

As Canberra weighs these new digital competition laws, the right questions are not ideological but empirical; what are the impacts of upfront regulations on product variety, prices, productivity, investment, and innovation? Australia also has a unique opportunity, not afforded to first movers like the EU: by observing how other jurisdictions, have designed and implemented similar frameworks, it can avoid the missteps of early movers while tailoring rules to its own economy. Being first offers influence and signaling power, but especially for smaller economies like Australia, entering later provides the chance to learn from experience and avoid unnecessary disruption.

II. Australia's Proposed Framework

Treasury's proposed hybrid model blends features of the EU's Digital Markets Act (DMA) and the UK's Digital Markets, Competition, and Consumers Act (DMCC). "Designated" platforms with a critical position in Australia's economy—initially app stores and ad tech—would face obligations to prevent self-preferencing, promote interoperability, and ensure fair treatment of business users.

Designations would last five years and be based on both qualitative (descriptive) and quantitative (numerical) criteria. This approach is a middle ground between the EU’s Brussels model, which relies on fixed structural thresholds, and the UK’s London model, which evaluates companies on a case-by-case basis. While the rules would mainly apply to Apple, Google, and Meta, their effects would ripple across Australia’s entire digital economy.

The Australian Treasury cites EU and UK impact assessments projecting substantial consumer benefits from similar reforms, though estimates vary significantly depending on assumptions and methodology. The empirical test is whether these rules, in practice, enhance competition and innovation—or simply increase compliance complexity.

III. The Case for Ex Ante Regulation

Competition and Consumer Gains: The EU estimated that DMA-style reforms could raise GDP by €43–174 billion and create up to 294,000 jobs over a decade by lowering entry barriers and enhancing dynamism. The UK's impact assessment for its Digital Markets, Competition and Consumers Act estimates net benefits of £5.167 billion over 10 years. These effects would stem from reduced switching costs, fairer platform terms, and more choice for users and developers.

Innovation for Third Parties: Startup advocates argue that interoperability and anti-self-preferencing rules "open key avenues" for innovation. Since the DMA took effect in 2023, Apple has allowed third-party app stores such as Epic Games' and AltStore's on iOS in the EU, previously impossible without regulatory intervention.

Early Implementation Evidence: Early outcomes under the Digital Markets Act, such as browser choice screens, alternative in-app payment systems, and messaging interoperability, suggest tangible though evolving shifts in market structure. Evidence from browser choice screen implementation shows a measurable, if localized, competitive effect. Industry analyses, including Mozilla’s research, find that these screens and related default changes have boosted downloads and engagement for smaller browsers, illustrating how simple regulatory design can enhance discoverability and consumer choice. Yet these gains remain modest and geographically limited to the European Economic Area (EEA), with longer-term impacts on market share, pricing, and innovation, is still uncertain. Even so, the early experience demonstrates that regulation can open new competitive pathways.

IV. The Case Against Ex Ante Regulation

Critics warn that broad new rules may impose heavy costs, deter investment, and stifle platform-level innovation.

Economic and Productivity Risks: Industry-funded research by NERA, commissioned by the Computer & Communications Industry Association, projects Australia's framework could cut GDP by A$10–21 billion and reduce consumer welfare by A$4–17 billion over five years. The study also forecasts up to 17% lower digital investment and a 0.4–1.6 percentage-point slowdown in productivity growth. These estimates should be interpreted cautiously given the funder's interest in the outcome and have been contested by competition economists.

Similarly, Oxera estimates DMA-style rules could trim EU ICT R&D by 8.6% (€3.4 billion annually), producing a broader €6.8 billion social loss. The OECD cautions that fragmented regulatory regimes may depress efficiency and complicate cross-border trade.

Compliance Costs

Implementation costs in the EU have exceeded initial expectations. The European Commission estimated €10 million per gatekeeper annually, but companies such as Amazon report spending hundreds of millions on compliance. Previous Scholl Chair estimated that the DMA and DSA cost increase on European businesses could be between $43 and $71 billion per year. Smaller markets like Australia could face proportionally higher burdens.

However, cost estimates come from industry sources and may overstate harm by treating all compliance spending as lost value rather than the price of correcting anti-competitive behavior.

Platform Innovation and Strategic Frictions

Apple initially delayed its "Apple Intelligence" AI features in Europe, citing DMA interoperability requirements, though the features later became available in 2025. Apple also restricted some new AirPods features. Google claims DMA changes increased search friction, adding "tens of millions" of extra clicks.

These examples warrant scrutiny from both directions. The European Commission disputes Apple’s characterization, stating “noting in the DMA requires companies to lower their privacy standards” and noting that Apple requested the EC "scrap everything" after two months of compliance discussions. Whether these delays represent real technical barriers or strategic pushbacks remains debated, but they underscore the transition friction inherent in large-scale reforms.

Regulatory and Market Risks

Upfront rules require ongoing technical oversight, creating risks of regulatory capture or miscalibration. Overly rigid rules could freeze market structures or deter experimentation. Divergent global regimes risk fragmenting digital markets and discouraging feature deployment in smaller jurisdictions.

These challenges strengthen the argument for caution: ex ante regulation, while promising, is not costless. Australia has the advantage of observing other regimes and can calibrate its framework to minimize unnecessary disruption, prioritizing evidence over ideology.

VI. Innovation and Market Dynamics: A Nuanced Trade-Off
The core innovation debate centers on who drives technological progress—dominant platforms or the ecosystem around them. Large technology firms invest heavily in research and development; with the large U.S. “hyperscaler” tech firms spending about $223 billion on R&D in 2023 alone Critics argue that imposing interoperability or unbundling requirements could divert these resources from core innovation. At the same time, if upfront regulatory rules succeed in lowering entry barriers, they could unlock this latent entrepreneurial activity. Proponents argue that regulatory sandboxes and flexible oversight can support innovation while maintaining safeguards. Programs such as Australia’s ASIC fintech sandbox and its forthcoming AI sandbox provide controlled environments for experimentation and iterative learning. The transition, however, will be uneven. Implementation of the Digital Markets Act has already proven contentious, with disputes over compliance and technical standards. Whether these short-term disruptions ultimately yield more dynamic and innovative markets remains to be seen.

VII. Complementary Policy Tools
Australia’s approach can blend upfront regulation with flexible, innovation-friendly policy instruments. R&D tax incentives are among the most effective levers: studies show that each dollar of R&D credit generates more than a dollar in additional private investment, helping startups scale. Expanding regulatory sandbox programs can further provide safe testing spaces for new technologies while preserving competition goals. At the same time, case-by-case enforcement against misuse of market power remains essential to address localized or emerging abuses that ex-ante rules may miss. Strengthening data portability—by extending the Consumer Data Right beyond banking—could also enhance consumer switching and competition without imposing rigid conduct mandates. 

VIII. Conclusion: Designing with Humility 

Australia's challenge is clear: can it design digital rules that enhance competition without undermining innovation? The evidence points to a genuine trade-off.

The case for upfront regulation: Clear evidence of concentrated market power, limits of case-by-case enforcement, and early signs of increased consumer choice under the DMA.

The case against: Significant compliance costs (though contested in magnitude), transitional innovation delays, regulatory complexity, and uncertain long-term gains.

Neither side holds definitive proof. The EU's experience is too new for robust evaluation, and modeling on both sides relies on strong assumptions. Policymakers should thus approach the issue with humility and empirical rigor.

Australia's best path forward starts with anchoring any designation decisions in clear evidence of market power and demonstrable harm, rather than abstract concerns about platform size. The framework should be adaptive by design, incorporating regular reviews and sunset clauses that allow policymakers to adjust course as evidence accumulates about what works and what doesn't. 

Pairing upfront obligations with complementary tools, R&D tax incentives for startups, expanded regulatory sandboxes, and continued case-by-case enforcement, offers a more flexible and innovation-friendly path than regulation alone. International coordination with the US, EU, UK, and other partners will be essential to minimize market fragmentation and reduce compliance burdens, while transparent evaluation mechanisms should track real-world costs and benefits to inform future adjustments.

The ultimate goal is not to choose between innovation and competition, but to address underlying market failures that hinder both. A balanced, evidence-driven framework can enhance Australia's digital competitiveness while reinforcing its reputation as a pragmatic, data-informed policymaker in the evolving global technology landscape.

Success will not be measured by the elegance of the regulation, but by the outcomes it delivers. That final assessment, however, remains some time away.

Philip A. Luck is director of the CSIS Economics Program and Scholl Chair in International Business.