HI5003 Economics for Business: Monopoly Analysis - Australia

This report examines the effects of a monopoly market structure, specifically focusing on the Australian electricity market and the role of companies like Energy Australia. It highlights the increasing energy bills and tariffs in Australia, attributing them to the market power held by monopolistic electricity network companies. The analysis discusses how these companies, as price makers, can exploit consumers due to a lack of competition. The report recommends government intervention through policies and regulations to control electricity tariffs, eliminate unfair practices, and reduce barriers for new market entrants, aiming to protect consumers from monopolistic exploitation. The HI5003 Economics for Business report concludes by emphasizing the need for government oversight to ensure fair pricing and prevent the adverse effects of monopolies on household budgets.

Monopoly and its effects on the market
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Contents
Introduction......................................................................................................................................3
Economic analysis...........................................................................................................................4
Recommendations............................................................................................................................7
Conclusion.......................................................................................................................................8
References........................................................................................................................................9
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Introduction
Monopoly is the market structure of the country in which there is a single seller selling the
products with unique and differentiated features. In this type of market structure, there are many
restrictions and barriers for the other firms to enter the market. These barriers arise due to the
ownership that the company possesses in the market. With the help of copyrights and patents the
company legally restricts the entry of new entrants in the market. Economies of scale are
achieved by the company when they increase the scale of operations and lower the costs as a
result of which it becomes easier to earn more profits. The monopolist is the price decider in the
market.
Australia’s electricity providers such as Energy Australia have a monopoly market structure in
the field of electricity supply. Sydney, central coast, Newcastle and certain areas of NSW are the
places where the energy is supplied by the monopolist named Energy Australia. With the
increase in the energy tariff, the concern of the general public and the various government
officials has increased for which they are demanding an effective solution. The hike in the prices
is because of the monopolistic power of these companies in the market.
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Economic analysis
From the surveys conducted and analysis drawn it is evident that energy bills in the country of
Australia are increasing rapidly from the past 5 years. The news reports at the present levels
show the hike in the tariffs in few states up to 20% as compared to the tariffs during the years
2014-2015. When the overall percentage of increase for the past 2 decades is taken into
consideration, it is seen that there has been a tremendous hike from 60% to 99.9%. With the
rapidly increasing prices and the level at which it is increasing, it can be said that electricity bills
are taking a large proportion of the overall household budget for the individuals. Increasing cost
of network incurred by the electricity companies are the main reasons for the increasing prices
and tariffs (Merhav, 2017).
Electricity network companies are the monopolist companies as they are the only ones to provide
wires as well as poles to deliver the electricity in certain areas and places. Being a monopolist in
the market in the electricity providing industry, these companies are facing a lot of criticism from
the politicians and consumers for exploiting them due to the monopolistic power they have on
the market. Over-investing in the electric field has put a lot of burden on the consumers as they
have to bear the increased prices and tariffs. As they are the market leaders, they set the prices
and make decisions regardless of any other market or consumer factor (Hawley, 2015).
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(Source: Slezak, 2018)
The above graph represents the hike in the prices of the gas and electricity supplied in Australia.
Through this issue, the main aspect that is required to be identified is the market power which the
monopolistic company possesses. Market power is the ability of the organization to manipulate
or control the prices of the services and products in the market. With the help of this action, the
company is able to manipulate and control the supply and demand level. Australia’s electrical
companies have gained a monopolistic position in the industry of energy distribution as a result
of which these electrical companies have the capability and power to manipulate the prices in the
market and thus maximize their profit margin (Skynews, 2018).
Such companies are termed as the price makers as they are having the power of fluctuating and
deciding the market price of the services and products they offer, without affecting the
percentage of the share they have in the market. More the number of organizations less will be
their market share and less number of organization leads to increase in the market share, which
increases their power of decision making in the market (Baldwin & Scott, 2013).
Having the monopolistic situation, Electricity Company in Australia enjoys a considerable
amount of freedom in deciding the prices of the services they offer. Their decisions regarding the
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price hike affect the budget of many households. A monopolistic situation is beneficial for the
profitability of the companies but is a disadvantage for the individuals due to the tremendous
hike in the prices (Carraro, et. al., 2013).
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Recommendations
It is quite important for understanding the ongoing situation so as to control the negative
consequences and reduce the exploitation of Australia public by electricity companies of
Australia. Under the monopolistic structures, exploitation begins when advantage over the
customers is taken by the organization. This situation arises when a particular organization is the
only service or product provider to the customer segments. There are certain recommendations
which are required to be followed so as to reduce the negative outcomes for the consumers and
make them available with the electricity at reasonable and affordable tariff.
The government should take necessary steps and measures in the form of strong and strict
policies for bringing down the increasing electricity tariff. This will reduce the exploitation of
the consumers in the further situations. The government of Australia needs to modify the existing
contract terms so as to eliminate the unfair practices conducted by the monopolistic companies.
A separate act can be developed by the government which helps in controlling and eliminating
the monopolistic exploitation of the country. Setting the tariff rates which can be affordable by
every individual will be beneficial for the company and measures can be taken by the
government for reducing the barriers for new entrants.
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Conclusion
It is concluded that different market structures affect and influences the economy of the country
to a great extent. The market structure of the monopolistic organizations directly controls and
influences the prices of the services and products or it can be said that they have extensive power
in the market. Monopolistic organizations are the price deciders and implement strategies and
plans as per their decisions regardless of any other market factor. It is important for the
government of the country to ensure that the monopolistic organizations do not exploit the
consumers, with the help of strong policies and regulations.
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References
 Baldwin, W., & Scott, J., 2013. Market structure and technological change. Taylor &
Francis. Vol. 18
 Carraro, C., Katsoulacos, Y., & Xepapadeas, A. (Eds.)., 2013. Environmental policy and
market structure. Springer Science & Business Media. Vol. 4. Hawley, E. W., 2015. The New Deal and the problem of monopoly. Princeton University
Press.
 Merhav, M., 2017. Technological dependence, monopoly, and growth. Elsevier.
 Skynews., 2018. Monopoly power driving up prices: SA PM. [Online] Skynews.com.au.
Available at: http://www.skynews.com.au/news/politics/state/2017/08/07/monopoly-
power-driving-up-prices--sa-pm.html [Accessed on: 7 April 2018].
 Slezak, M., 2018. Your electricity bill: what are you paying for and why is it
skyrocketing?. [Online] The Guardian. Available at:
https://www.theguardian.com/australia-news/2017/aug/10/your-electricity-bill-what-are-
you-paying-for-and-why-is-it-skyrocketing [Accessed on: 7 April 2018].

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