Economics Assignment: Analysis of the Oligopoly in Australian Banking

This economics assignment report analyzes the oligopoly market structure within the Australian banking sector. It defines an oligopoly and highlights its characteristics, such as a small number of sellers and high entry barriers, which are often due to factors like large-scale financial requirements, government regulations, and patents. The report identifies the Australian banking sector as a prime example of an oligopoly, dominated by four major players: Westpac, ANZ, Commonwealth Bank, and National Bank. It compares the Australian scenario with other nations like Norway and Finland. The assignment provides data on the market share of these banks, the interconnectedness of financial corporations, and the dominance of the major banks in terms of assets, loans, and deposits. The analysis also touches upon the Australian government's support for the concentration in the banking industry, which strengthens the power of the dominant players. The report uses figures to illustrate the market share of the banks in total resident assets, loans, and deposits from financial corporations, and concludes that the four major banks play a significantly dominating role in the Australian banking industry.

Running Head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author note

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Table of Contents
Industry in Australia representing Oligopoly..................................................................................2
References........................................................................................................................................6

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Industry in Australia representing Oligopoly
Oligopoly market is defined as one where the market is dominated by a small of seller.
The relatively small number of firms in the industry is attributed from a high entry barrier for
new entrants. Entry barriers in the oligopoly industry is in the form of need of large-scale
financial resources, government regulation and patents. Presence of few sellers results in a high
market concentration. There are mainly non-price competition among the few firms in the
industry. There are certain sectors both in develop and developing countries. Australia, one
leading economy in world has some concentrated markets. One major sector having high market
concentration is banking sector of Australia.
There are four dominant players in the Australian banking industry. These are four
dominant players in the banking sector are Westpac, Australian and New Zealand Banking
group, Commonwealth Bank and National Bank. Australia is not the only nation having
oligopoly in its financial sector. In Norway, three largest banks in the nation have 84% share in
the market. For Finland, the percentage share of major banks is 85% (Beatty & Liao, 2014).
In the oligopoly market, there generally exist a high barrier to entry. The banking sector
in Australia has significant entry barriers. The entry barriers in the banking sector is highest as
compared any other sector. In addition to regulatory barriers and huge capital requirement,
considerable market power enjoyed by the existing big four players also work as an entry
barriers in the concerned industry (abc.net.au, 2016). Already existing big player possess biggest
threat to the new entrants.
Almost in all financial transactions, deposits or holdings the four major banks are far
ahead of the other participants in the banking industry. In terms of total resident assets, the share

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of four major banks ranging from 16 to 23 percent of total assets as compared to only 2 percent
share of next four banks.
Figure 1: Share of banks in total resident assets
(Source: apra.gov.au, 2013)
In the financial sector, there are interconnectedness among financial corporation with
respect to intra financial asset and liabilities. In this regard also, the major four banks are ahead
of other participants in the industry. Nearly, 15 to 25 percent of total loan and advances to other
financial institution are provided by these banks.

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Figure 2: Loans and advances to the financial corporation
(Source: apra.gov.au, 2013)
In terms of short and long-term securities deposits, there are dominant share of deposits
of four large players. Total securities in these four banks range from 14 to 19 percent. The fifth
most active bank have only three percent share in total deposits.
Figure 3: Deposits from financial corporation
(Source: Yan et al., 2014)

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The discussion above shows that the four major banks play a significantly dominating
role in Australian banking industry. The oligopoly structure in the banking industry gained
support from Australian government. Concentration in the banking industry strengthens the
power of dominating players and help them to grow at a faster pace.

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References
Beatty, A., & Liao, S. (2014). Financial accounting in the banking industry: A review of the
empirical literature. Journal of Accounting and Economics, 58(2), 339-383.
Pages - Domestic systemically important banks in Australia - December 2013 .
(2018). Apra.gov.au. Retrieved 1 January 2018, from
http://www.apra.gov.au/adi/Publications/Pages/Domestic-systemically-important-banks-
in-Australia---December-2013.aspx
The banks are too big for the nation's good — here's why. (2016). ABC News. Retrieved 1
January 2018, from http://www.abc.net.au/news/2016-08-31/janda-aus-banks-are-too-
big/7789830
Yan, X., Skully, M., Avram, K., & Vu, T. (2014). Market discipline and deposit guarantee:
evidence from Australian banks. International Review of Finance, 14(3), 431-457.