Imperfect Competition in the Australian Market

This assignment explores imperfect competition within various Australian industries. It examines how supermarkets are dominated by Woolworths and Coles, the telecom market where Telstra faces competition from TPG, Optus, and Vocus, and the concentration of players in the banking sector. The paper argues that while some sectors benefit from limited competition, excessive market power can harm consumers. It concludes by suggesting that promoting competition is crucial for protecting buyer interests and ensuring a fair marketplace.

Running Head: ECONOMICS FOR BUSINESS
Economics for Business
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Table of Contents
Introduction......................................................................................................................................2
Summary of the news article...........................................................................................................2
Economic theory and concepts........................................................................................................4
Monopoly.....................................................................................................................................4
Oligopoly.....................................................................................................................................5
Duopoly.......................................................................................................................................6
Recommendation.............................................................................................................................6
Conclusion.......................................................................................................................................6
References........................................................................................................................................8

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Introduction
Definition of market in economics goes beyond the traditional definition where concept
of market is limited to single place for commodity exchange. In an economy, there are different
forms of market. Each of this market has some similarities and differences. Competition among
buyers and sellers is maximum in perfectly competitive market. No participants have any power
to influence market outcome and hence is ideal for the economy. Forms of market where sellers
compete imperfectly are monopoly, oligopoly and monopolistic competition. The paper analyzes
monopoly, oligopoly and duopoly market structure prevailing in Australian economy. A new
article is chosen and evaluated using theories and concepts from economics.
Summary of the news article
Concentrated market has now become a feature of developed nations. In several major
economic areas few big player dominates the market. Australia in recent days have experienced
extensive form of competition in several market. Most of the large business in Australia forms an
oligopoly domain. With increasing domination by only two market players, it often take the form
of a duopoly market.
In the supermarket structure Coles, Woolworth and Wesfarmers are some major players
in the supermarket chain. Four big players dominate the banking industry in Australia. There is
one very big company in the telecommunication industry. Over the years, they have developed
this kind of market structure and generates high returns. The concentrated market structures have
always been an attractive place for investors to channel their funds. The markets with high profit
margin provides investors a high return (abc.net.au 2017). This gives the Australian firms an
advantage over their global competitors yielding a relatively low return and offering a less

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comfortable environment. However, expansion of such markets are subjected to support
provided by government and regulator. However, favorable days for big businesses are fading
ways followed by reduced opportunities of domestic growth, technological disruption and
increased competition from foreign companies that capture a significant share of profit margin.
The focus of Australian Competition and Consumer Commissions has shifted. Previously, the
policies are more concentrated towards controlling prices in the industries, which now focused
more on determination of market structure and distribution power in the industry. Once markets
becomes more and more concentrated, firms obtained a significant market power they exploit
buyers. The commission is now regulating such exploiting behaviors.
In the telecommunication industry, Telstra has enjoyed a lion share forming a quasi-
monopoly. There are prospective for four players to enter the market after rolling out of National
Broadband Network. The breakdown of Telstra monopoly structure will open up avenues of new
companies in the market. Once profits are shared among several players, the return to each
company reduces. Research made by Telco analyst Morgan Stanley suggests estimated number
of 100,000 subscribers to break-even. In order to generate a standard profit it need around
200.000 subscribers (theguardian.com 2017). This estimated number of subscribers represent
only 3 percent of total subscribers in the broadband market. Thus, National Broadband Markets
are raising entry barriers into industry. The large players such as Telstra, TPG, Optus and Vocus
have enjoyed considerable competitive advantage.

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Economic theory and concepts
Monopoly
The market dominated by single firm is called a monopoly market. The single seller in
the monopoly market enjoys maximum amount of market power. The firm take its own decision
regarding price and output. The monopolist always sells a lower quantity at a comparatively at a
high price. In the competitive market, profit (if any) exists only in the short run (Baumol and
Blinder 2015). However, the monopolist maintain profit not only in the short run but also in the
long run.
Figure 1: Monopoly profit in the long-run
(Source: as created by Author)
Higher the market share more concentrated the market is. In the telecommunication
market, Telstra enjoys nearly 80 percent market share leaving only 20 percent for other

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competing companies. With 80 percent market share, Telstra has retained a monopoly position in
the industry (Nabin et al. 2014).
Oligopoly
Oligopoly is a form of imperfectly competitive market. In the oligopoly market, there are
only a few sellers in the industry. Because of small number of sellers, each enjoys a significantly
large share in the market. The market though concentrated but is still better than monopoly
market dominated by a single seller (Cowen and Tabarrok 2015). One feature of oligopoly
market is the kinked demand curve.
Figure 2: Oligopoly market and kink-demand curve
(Source: as created by Author)

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With new companies entering in the telecommunication industry, the market share of
Telstra has reduced. The Telco giant has now enjoyed 60 percent market share as compared to
earlier 80 percent share. TPG and Vocus are growing rapidly and dominating other competitors.
The smaller players once enter in the market gradually drive away Telstra’s share by offering a
cheaper product (Tyers 2015). Therefore, it is expected that NBN may allow oligopoly in the
telecom market as some form of competition is better than monopoly enjoyed by Telstra.
Duopoly
Duopoly is a subset of oligopoly. When only two large firms in the oligopoly market
dominates then it is called a duopoly (White 2015). In the grocery supermarket, Woolworth and
Coles form a duopoly.
Recommendation
Concentration in different market has become prevalent in Australia. In any form of
imperfect competition, buyers are always at a disadvantageous position. Sellers use their market
power to exploit the buyers. The situation becomes worse when large players receive support
from the government. For some areas, it is better to have few sellers. Except those areas,
government should support competition as much as possible. Like in the telecommunication
market, Telstra alone enjoys 80 percent. However, TPG, Optus and Vocus have significant
opportunities to operate in the industry. As new entrants come in the industry, they offer cheaper
products and benefits the buyers.
Conclusion
The paper analyzes imperfect market structure in Australia. Australian supermarkets,
telecommunication industry and in the banking industry is dominated with few players. The

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sellers in the concentrated market is an attractive investment destination. However, recently
Australian competition and consumer commission now focusing on distribution of market power.
Competition is always better than concentration. Therefore, in future there will be some
competition in these market protecting buyers interest.

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References
ABC News. (2017). NBN likely to entrench broadband oligopoly: analysts. [online] Available at:
http://www.abc.net.au/news/2016-04-08/nbn-to-entrench-broadband-oligopoly/7310228
[Accessed 17 Jan. 2018].
Baumol, W.J. and Blinder, A.S., 2015. Microeconomics: Principles and policy. Cengage
Learning.
Cowen, T. and Tabarrok, A., 2015. Modern Principles of Microeconomics. Palgrave Macmillan.
Jericho, G. (2017). Australian consumers need protecting in an economy dominated by so few
players | Greg Jericho. [online] the Guardian. Available at:
https://www.theguardian.com/business/grogonomics/2017/dec/05/australian-consumers-need-
protecting-in-an-economy-dominated-by-so-few-players [Accessed 17 Jan. 2018].
Nabin, M.H., Nguyen, X., Sgro, P.M. and Chao, C.C., 2014. Strategic quality competition,
mixed oligopoly and privatization. International Review of Economics & Finance, 34, pp.142-
150.
Rader, T., 2014. Theory of microeconomics. Academic Press.
Tyers, R., 2015. Service Oligopolies and Australia's Economy‐Wide Performance. Australian
Economic Review, 48(4), pp.333-356.
White, A., 2015. Why Australian factors are unique. Investment Magazine, (121), p.30.