How to Correct Market Failure in Australian Energy Market

Running Head: ECONOMIC PRINCIPLES
Economic Principles
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1ECONOMIC PRINCIPLES
Executive Summary
The report aims to address the issue of energy market failure in Australia. The energy market of
Australia largely follows the structure of an oligopoly market. The dominance of large players in
the market interrupts the efficient functioning of the market. Most of the energy resources are
exported to other nations. This results in a shortage of power in the domestic economy.
Interruption in the electricity market the interrupts power supply in for both domestic and
commercial uses. High electricity price is an inevitable consequence of power shortage. In order
to correct the market failure in the energy market Australian government has taken some
restrictive measures. The phenomenon of market failure is not limited to developing nations.
Markets in developed nations also experiences market failure due to inefficient functioning of
market.

2ECONOMIC PRINCIPLES
Table of Contents
Introduction......................................................................................................................................3
Critical evaluation of the chosen industry.......................................................................................3
Market failure in Australian energy market.....................................................................................4
Consequences of Market Failure on Society...................................................................................6
Government action for market failure.............................................................................................7
Market failure in developing and developing nations.....................................................................8
Conclusion.......................................................................................................................................9
Reference list.................................................................................................................................10

3ECONOMIC PRINCIPLES
Introduction
Understanding the basic structure of market plays an important role in evaluating
performance of an industry. The most common basis of categorizing market is the number of
buyers and sellers or degree of competition in the market. Market having numerous buyers and
sellers is defined as a perfectly competitive market. A monopoly market is one where single
seller dominates the entire market. Monopolistically competitive market is a combination of
monopoly and perfectly competition (Baumol & Blinder, 2015). In such a market, there are
different brands of the same product competing with each other. Oligopoly describes a
concentrated market having few dominating sellers. The paper presents a report on Australian
energy market with special focus on market failure. The likely cause and consequences of
resulting market failure along with corrective measures are discussed in reference to the chosen
market.
Critical evaluation of the chosen industry
The power generation industry in Australia is turning increasingly concentrated due to
dominance of large power stations. In every state, there are two big players dominating 50
percent of the market share in every state. Market dominated by few sellers is identified as an
oligopoly market. Besides State enterprises, there are some private providers in the Electricity
market (Nepal & Jamasb, 2015). The table below shows distribution of market share some states
of Australia