What does the proposed block on online retail M&A mean for innovation?

Competition in retail markets is benefiting from emerging online players providing low price alternatives to the major retailers. So does it come as a surprise that the ACCC has declared its intention to crack down on mergers between the two?

The regulator’s Chairman, Rod Sims, caused some disruption in the competition space last week by announcing that the ACCC would likely block moves by established retailers seeking to acquire “promising” start-up online retailers.[1]

While the comments would clearly upset large retailers looking to grow their digital portfolio (and their share of the market), some e-commerce entrepreneurs have argued that it is equally concerning for young businesses. One possible view is that, by blocking an obvious exit strategy and the ability to partner with established retailers, the ACCC is inadvertently decreasing healthy competition in the online retail space.

But is that the case?

According to the ACCC, the regulator’s main focus will be to ensure that big retailers do not frustrate healthy competition, currently being fostered by attractive price offerings from up-and-comers. Mr Sims noted that, in circumstances where a younger player is considering an offer by an established retailer, the regulator “may prefer you to sell to someone who wants to keep that behaviour going rather than to someone who wants to shut you down.”[2]

The ACCC’s new stance may prevent some entrepreneurs from making a quick profit by selling to a major chain. However, I am not convinced that this alone overshadows the benefits of an online retail market where innovative and diverse entrants have the opportunity to compete effectively. 

If the ACCC’s focus inhibited the ability of young businesses to build scale and profitability through partnerships, then my view would perhaps be different. However, (from the comments made by Mr Sims so far) it would appear that the regulator’s stance will ultimately protect new players in the market and drive innovation, rather than discouraging them from entering at all.