ECO501: An Analysis of the Australian Finance Market Structure

This report provides an in-depth analysis of the Australian finance market, with a specific focus on the cozy banking oligopoly. It examines the dominance of the four major banks (Westpac, ANZ, National Australia Bank, and Commonwealth Bank of Australia) and their impact on market competition, customer pricing, and the overall financial system. The report discusses the concerns raised by ACCC chairman Rod Sims regarding the lack of competition and the need for regulatory changes to address the issue. It explores the implications of the oligopolistic market structure, including reduced consumer choice, potential for price manipulation, and the importance of fostering competition through measures like open banking and the emergence of new banking entities. The report concludes by emphasizing the need for increased competition to ensure a more flexible and customer-centric financial market in Australia. The report also analyzes the actions taken by the government to address the oligopoly.

Running Head: Economics
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ECO501
9/4/2019

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Contents
Introduction......................................................................................................................................2
Analysis...........................................................................................................................................3
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

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Introduction
The financial scheme of the Australia market is very dynamic. In this essay, the
discussion will be done in regards to the organization of the finance market of Australia and the
cozy banking oligopoly. Oligopoly market structure is the structure where the market is highly
concentrated and few firms are dominated. In the oligopoly market structure the firms have the
interdependence on the different firms for taking the good decisions. The competition in the
oligopoly market is not much as there are very few firms who are operating in the market. The
large finance companies enjoy the economies of scale as the competition is less and they have
the dominant power (KIM and Knittel, 2016). The big finance companies have control over the
specialized units which lead to creating many problems in the Australian market. In this essay
with the help of the diagrams and illustrative examples the Australian finance sector will be
explained. The statement was given by the ACCC Chairmen, ROD SIMS will also be elaborated
and the actions taken by him to overcome the problem will also be analyzed.

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Analysis
Cozy banking oligopoly indicates the dominating market by the large finance banks. The
banking should have flexible working where the importance has been given to the customers.
But in the Australian finance market the more power is in the hands of the banks and they
dominate their customers (Anderson and Jullien, 2015). In the oligopoly market the few firms are
combined together so that the effective working can be done in the market and the competition
can be reduced. The prices for the consumers in the banks are increased as the competition is
very less. In Australia also there are the four major banks which are combined together and have
the power to regulate the customers of Australia. The four banks which have the huge power in
Australia and which are dominating the customer are Westpac, ANX bank, National Australia
Bank and the Common Wealth Bank of Australia. The four pillars of the banks are combining
together for the flexible working in the finance market structure which is known as the cozy
banking oligopoly.
But when these four banks are combined many issues have been faced by the Australian
market and the flexibility of the market structure was reducing. Mr. Rod Sims, ACCC chief
executive analyses that the four pillars of the banks are giving the unsatisfactory results and
many complain of the consumers is seen (Matsumura and Tomaru, 2012). Mr Rod Sims decided
to deal with this situation and involved in the finance sector. The market structure of finance was
handled by the big large banks around 75% and the remaining by the small banks and the
government of Australia support these banks.
Source: ft.com

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The main groups of Australia do not have any fear of declining the market share and set
the prices higher for increasing their profit. The four pillars of the Australian banking system
were underpinned the banking system. The oligopolistic banking system of Australia was
exploiting their customers as the major banks have maintained their opaque pricing (Strebulaev
and Whited, 2012). The customers of the banks also face many problems such as lack of
information, conflicted advice, etc. The customers should have good control in the banking
system but in Australia all the powers are in the hands of the Bankers which were creating the
problem.
Another problem is also created in the hassle banking in which the third party can access
the data through open banking. It was recommended by the chairmen Mr Rod Sims that if the
rivalry in the market will be increased then it will result in the improving the market structure of
Australia (Shafie-khah, et al., 2015). The financial system of Australia was affecting the vertical
and the horizontal integration and it was boosting the profit but without the repercussions.
The market share of Australia was basically controlled by the four pillars of the banks so
they have the high influences of the prices and charged too much from the customers. As the
high influence was in the hand of the four banks so the competition in the financial sector of
Australia is very less. The economic system of Australia is abundant due to the cozy oligopoly
market structure. The customers do not have many choices and they have to take the financial
services from the theses banks only there was the declining in the productivity of the banking
due to the high influencing (Tabak, et al., 2015). The decision making of the consumers also
engaged in the manipulation which was also affecting the financial market. The inflation in the
financial market has also increased due to the cozy oligopoly and it was also affecting the trends
in the banking system.
As per the Rod Sims, which was the chairmen of the ACCC, the competition in the
banking system has to be increased so that consumers can be protected by the high domination.
The competition in the banking sector has to be increased so that the cozy oligopoly can be
wrested up. If any misconduct happens by any of the four Australian big pillars then they are
punishable in the court (Matsushima and Matsumura, 2013). The problems of the customers can

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be fixing when there is a high level of competitions as the customers can shift to other banks if
they are not satisfied with their services.
Source: fsi.gov.au
The Australian market was controlled by four biggest banks and they have the 75%
control of the total domestic market (Salim, et al., 2016). The four pillars never face any
problems or troubles in the banking system as it was implicit by the government guarantee. The
market economies can work effectively if the financial market will be increased so for that the
chairmen of the ACCC, Rod Sims decided to increase the competition. He has also given the
statement that banking sector has to feel the threat then only the cozy oligopoly can be fixed by
the four big banks. The open banking rules were also promoted by Mr Sims so that the small
banks can be stripped away and the regulatory barriers can be removed. The customers can easily
shift or switch to other banks if they find any difficulty in the banking sector (Tridico, 2012).
The Australian financial market has done many criminal cartel charges which have to be
shake up to improve the performance. The oligopoly Australian finance market has to turn up
into the smooth coastal highway for that the competition has to be increased. In the year 2016,
the Australian institute has evaluated a profit of 2.9% of the GDP (Anne-Charlotte and Harold,
2015). Some issues are raised in the company ANZ related to the share issue price in the year
2015 which was also affecting the financial economy. Many governance problems are raised due
to the four pillar system and it was also impacting the culture of impunity. The government has

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taken strict actions for breaking the oligopoly marketing in finance and enhances the long-
abandoned ideas so that the competition in the banking sector can be boosted up. To reduce the
power of the four banks and their domination over the customers, the new banks have to be
emerged in the market (Fu, et al., 2014).
The four banks have a great influence on the financial sector so to break their power the
customer has to be shift on the new banking companies (Shaffer and Spierdijk, 2015). The small
new banking system has to emerge in the market so that the situation of the cozy oligopoly
market can be overcome and the Australian financial market can become more effective.
The first scheme of the cozy oligopoly banking came in the year 1990 which was
combining the banks to remove the competition from the financial market. But rather than
resulting in an effective way the introduction of oligopoly banking has created many issues in the
financial market (Bandyopadhyay, et al., 2014). The prices have been increased and the customer
is not satisfied with the banking services which results in the inverses way. The uncertainty level
in the banking system has increased and they were also producing the culture immunity. Before

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investing the money in these four financial banks the investors think many times as the
government has a high influence on that.
The economies of the financial market were corrected by the chairmen of the ACCC as
the dominance of the four biggest banks was removed. Rod Sims has also emerged many small
bankers so that the customers can be satisfied with the banking system (Wu and Shen, 2013). So
it is analyzed that before operating the financial market it is important to analyses the market
structure. The market structure of Australia basically relies on the economies and the finance so
the competition in the market should be high so that the structure can be maintained. The
banking system of the Australian market was very strong but due to the high power influence
they were not making it effective and some changes have to make so that power can also be in
the hands of the customers. The new banking rules were emerged by Mr Sims so that more banks
can be promoted in the monetary sector and Australian economic market can be improved
(Nevo, 2010).
Conclusion
From the above evaluation, it is concluded that the finance sector of the Australian
market was highly subjugated by the four major banks which are ANZ Bank, Westpac,
Commonwealth Bank of Australia and National Australia Bank and they are considered as the
four pillars of the economy. These banks are combined together and have a great influence on
the financial economy. To remove their power and to enhance more flexibility in the financial
sector the chairmen of the ACCC, Rod Sims has decided to rise the competition and to emerge
the small financial banks in the market. To remove the cozy oligopoly certain actions were taken
by the government of Australia and they have decided to take some power from the big four
banks and delivers it to small financial banks so that the economy can be maintained.

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References
Anderson, S. P., & Jullien, B. (2015). The advertising-financed business model in two-sided
media markets. In Handbook of media economics (Vol. 1, pp. 41-90). North-Holland.
Anne-Charlotte, V., & Harold, L. (2015). Biodiversity offset markets: What are they really? An
empirical approach to wetland mitigation banking. Ecological Economics, 110, 81-88.
Bandyopadhyay, S., Marjit, S., & Yang, L. (2014). International oligopoly, barriers to
outsourcing and domestic employment. Caandian Journal of Economics/Revue
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Fu, X. M., Lin, Y. R., &Molyneux, P. (2014).Bank competition and financial stability in Asia
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KIM, D. W., & Knittel, C. R. (2016). Biases in static oligopoly models? Evidence from the
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Nevo, A. (2010). Measuring market power in the ready‐to‐eat cereal
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Salim, R., Arjomandi, A., &Seufert, J. H. (2016). Does corporate governance affect Australian
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Shaffer, S., & Spierdijk, L. (2015). The Panzar–Rosse revenue test and market power in
banking. Journal of Banking & Finance, 61, 340-347.

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Shafie-khah, M., Heydarian-Forushani, E., Golshan, M. E. H., Moghaddam, M. P., Sheikh-El-
Eslami, M. K., &Catalão, J. P. (2015).Strategic offering for a price-maker wind power
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