The Financial Industry of Australia: Market Structure, Collusion Behavior, and Entry Barriers

Running Head: THE FINANCIAL INDUSTRY OF AUSTRALIA 1
THE FINANCIAL INDUSTRY OF AUSTRALIA
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THE FINANCIAL INDUSTRY OF AUSTRALIA 2
Introduction
Australia is among the developed countries and has a very stable economy. It has been
ranked among the top five richest countries in the region of Asia-Pacific. It has enjoyed more
than a decade of economic prosperity and even during the great 2008 economic recession it
posted a positive economic growth result though it was a decline (Karmel & Brunt, 2013).
Australian economy is denominated by five major industries namely the Financial, Business
Consulting, Metals and Mining, Energy and Utilities and Healthcare. The industry of choice is
The Financial Industry.
The financial industry of Australia is dominated by four big major banks which include
the National Australia Bank (NAB), Commonwealth Bank (CBA), Australia and New Zealand
Banking Group (ANZ) and Westpac Banking Corporation (WBC). There are several other small
banks and non-bank financial institutions but have a small market share in the financial industry.
The Global Finance has ranked all the big four major banks of Australia among the top thirty
safest banks in the world. The financial industry of Australia has been its major contributor
towards the national economic growth and still continues to be. It promises a bright future and
the Australian Bureau of Statistics results predict its profitability to increase in future and hence
contribute much towards improving the economic growth of Australia.
The Market Structure of the Financial Industry of Australia
The market structure generally refers to market characteristics which affect the nature of
competition that exists between firms in an industry (Helpman & Krugman, 2015). The
characteristics can be organizational or competitive in nature. Market structure is divided into
four major types which include the monopoly, monopolistic competition, perfectly competitive

THE FINANCIAL INDUSTRY OF AUSTRALIA 3
and oligopoly markets. The financial industry of Australia basically faces the oligopolistic
market structure which refers to a market structure involving only a few large firms controlling
the entire market. The financial industry of Australia consists majorly of only four big banks
with some other small banks and non-bank institutions. The four big banks have control over the
entire financial sector occupying over eighty percent of market share. This means that the other
small banks and non-bank financial institutions occupy less than twenty percent of the Australia
financial industry market share. Estimates show that the total capitalization market of these four
big banks is approximately five times the total market capitalization of the other small banks and
non-bank financial institutions. Due to the fact that the financial industry of Australia is
oligopolistic, much of price competition is not involved as the four major big banks determine
the profit maximizing prices to raise their profits and reduce competition.
The Market Concentration and Collusion Behavior of the Australian Financial Industry
The dominance of the financial industry of Australia by the four big major banks with a
market share of over eighty percent represents a relatively high level of concentration in the
overall industry market. The four big banks almost offer homogenous products. As a result the
four big banks in the industry have colluded together to form cartel like arrangements (Sathye,
2011). This is due to the fact that most of the main shareholders of the four big major banks in
the financial industry are the same. This means that there interests are common among all the big
four major banks. Due to this, the four big major banks have taken the advantage of setting up
high prices to maximize their profits without any fear (Davis, 2009). A common agreement is
made about the overall market price by all the four big major banks none of which should
retaliate. The four pillars policy which regulated the Australia’s financial industry by preventing