University Economics Report: Analyzing the Australian Retail Sector

This report provides a comprehensive market analysis of the Australian retail sector, focusing on its structure as an oligopoly dominated by a few large firms. It examines the impact of trade liberalization policies and the sector's contribution to the Australian economy, including its significant employment figures and contribution to the GDP. The report delves into the dynamics of demand and supply, illustrating these concepts with economic principles and diagrams. It also discusses the influence of e-commerce platforms and the effects of inflation on the retail market. The analysis concludes that while the retail sector has emerged as one of the most profitable sectors, it is also subject to market forces that impact pricing and consumer behavior. The report utilizes economic theories to explain the shifts in demand and supply, providing insights into the sector's growth and challenges.

Running head: ECONOMICS AND INTERNATIONAL TRADE
ECONOMICS AND INTERNATIONAL TRADE
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Introduction to the sector
According to the statistics, the contribution of the retail sector into the Australian
economy is impressive. It has been observed that the predicted ratio of the retail price with
respect to the marginal cost has declined over the last couple of years. The hike in the mark up
prices refers to the evolving competitiveness of the retail market. Recently, the Australian
economy has experienced a remarkable change in the market structure owing to the trade
liberalization policy (Bailey et al. 2015). The aim of the paper is to do a market analysis of the
retail sector of Australia and understand its impact on the economy of Australia.
Description of the Market structure
The market structure of the retail sector in Australia is Oligopoly which is governed by a
few number of firms who influence the market. There are large number of buyers in an
Oligopoly market with only few firms. The products provided by the firms can be either identical
or differentiated by quality, quantity, brand value, advertising or pricing (Tamm et al. 2015). The
industry has significant entry barriers from the big industries who dominate the market with
efficient logistics and innovative technologies.
The retail sector is one of the promising sectors of Australia that employs over 1.3
million people. It earns a significant amount from money from the retail and wholesale trade
industry that is engaged in the provision to retail products like electrical, electronic goods,
furniture, fuel, food, grocery, motor vehicles and parts, accessories, pharmaceuticals, garden
supplies, textiles, clothing and footwear to foreign countries (Weisbrod, Mulley and Hensher
2016). The major players in the sector are Wesfarmers Ltd, ALDI Group, Metcash Limited,
Woolworths Group Ltd, JB Hi-Fi Ltd, Kmart Australia Limited, Kogan.com Ltd and Myer

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Group Private Ltd. The operation of the firms has effectively changed after the introduction of
several e-commerce platforms that enables retailers to deliver products at low price and gain over
the market. The sector has fuelled its growth from shopping mall, big box retailers, vertical
brand, integration, private equity investors and internet shopping.
The retailers have been empowered with more economic power. They play important role
in determining the market price of the product and services. The evolving strength of the
producers has affected the cumulative purchasing power of the consumers in the retail industry
(Cunningham and Smith 2019). The retail sector in Australian has been reported to receive
detrimental impact due to soaring inflation rate. The data suggests that the share of industrial
output in case of retail has concentrated by a few numbers of industries. This reflects the
disparity in the economic power among the retail companies. Around 30% of GDP per year gets
accumulated by the Australian retail industry. The growth in contribution of the retail sector has
increased by more than 40% over the last couple of years. Overall, the retail sector is counted
under the top four industries in Australia (Hambur and La Cava 2018). Meanwhile, the
supermarkets and departmental stores comparatively accrue more share than non-store and motor
vehicle retailing sector. Apart from that, emerging growth of electrical goods and fuel retailing
has been exhibiting an increasing trend over the recent decade.
Demand and Supply
The demand and supply of the Australian retail sector is marked by the supply of
products in domestic and international market. The sector has huge supply of the products that is
marked by labor-saving technological advancement. Products are supplied in mainly four
countries United Kingdom, United States, China and South Korea due to high consumer demand.

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AD2
AS1
AS2
Output
Price
Y2Y1
E2
E1
P2
P1
The sector has expanded its overseas operations and opened several retail stores which benefitted
the sector with potential profits and revenues (Price 2016). Huge market demand has enabled the
firms to increase its supply that has led to a rise in price level or inflation. The supply and
demand of the retail products can be denoted with economic principles and theories.
Figure 1: Shift in demand and supply changes market equilibrium
Source: (as created by the author)
According to the traditional economic theory, the combined action of supply and demand
curve determines the market equilibrium output and price level. In the figure 1, price is
determined along with the perpendicular axis, whereas, the output level is measured along with
the vertical axis. Initially, the market is in equilibrium position at E1 correspondence to the
intersection of AD1 and AS1 curve. Afterwards, the trade liberalization policy encourages the

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retail investors to invest more in the Australian sector. In this regard, the Australian government
has decided to keep the interest rate at lower level (Grubb 2015).
As the lower interest rate results in the lower purchasing cost of loan, the investment
level in the retail sector increases. This leads to the improvement in the supply curve from AS1
to AS2. In this case, the producers experience economic surplus which implies that aggregate
supply is less than the aggregate demand. Henceforth, this enhances the employment level as
well as the per capital income across the Australian economy (Friedman 2017). People attain to
purchase more goods in response to the increase in the disposable income. This in result shifts
the cumulative demand curve from AD1 to AD2. Overall, the simultaneous growth in AD and
AS derives better equilibrium position for the economy.
Conclusion
Therefore, it can be concluded that the retail sector has emerged as one of the profitable
sectors. The market is dominated by a few number of large firms who provide quality and
innovate products that has huge demand in domestic and global market. Firms follow an
oligopoly market structure where products are divided by quality, pricing and brand value. This
has led to the expansion of the sector across several borders and generate super normal profits.
The supply of the products has increased after the transportation of market into e-commerce
platforms that could sold the good at low price. Australia heavily depends on its retail sector for
deriving huge profits. A rise in consumer demand has led to a rise in output level that has
effectively improved the profitability of firms, however has led to inflation.

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Reference list
Bailey, J., Price, R., Pyman, A. and Parker, J., 2015. Union power in retail: Contrasting cases in
Australia and New Zealand. New Zealand Journal of Employment Relations, 40(1), p.1.
Cunningham, M. and Smith, E. (2019). Exploring the Supply and Demand Drivers of
Commodity Prices | Bulletin – June Quarter 2019. Bulletin,
https://www.rba.gov.au/publications/bulletin/2019/jun/exploring-the-supply-and-demand-
drivers-of-commodity-prices.html
Friedman, M., 2017. Price theory. Routledge.
Grubb, M.D., 2015. Failing to choose the best price: Theory, evidence, and policy. Review of
Industrial Organization, 47(3), pp.303-340.
Hambur, J. and La Cava, G. (2018). Business Concentration and Mark-ups in the Retail Trade
Sector | Bulletin – December Quarter 2018. Bulletin,:
https://www.rba.gov.au/publications/bulletin/2018/dec/business-concentration-and-mark-ups-in-
the-retail-trade-sector.html
Price, R., 2016. Controlling routine front line service workers: An Australian retail supermarket
case. Work, employment and society, 30(6), pp.915-931.
Tamm, T., Seddon, P.B., Shanks, G., Reynolds, P. and Frampton, K.M., 2015. How an
Australian Retailer Enabled Business Transformation Through Enterprise Architecture. MIS
Quarterly Executive, 14(4).
Weisbrod, G., Mulley, C. and Hensher, D., 2016. Recognising the complementary contributions
of cost benefit analysis and economic impact analysis to an understanding of the worth of public

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transport investment: A case study of bus rapid transit in Sydney, Australia. Research in
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