An Examination of Oligopoly Markets and Competition in Australia

This report provides an economic analysis of oligopoly competition in the Australian market. It examines the characteristics of oligopoly markets, including market concentration, barriers to entry, and the potential for market power abuse. The report uses the newspaper article “Australia isn’t dominated by big businesses that gouge customers: Grattan report” to illustrate examples of oligopoly competition in industries such as banking, telecommunications, and supermarkets. The analysis explores the impact of oligopolies on consumers and small businesses, discusses the role of policy makers in promoting competition, and provides recommendations for government intervention, including stricter regulations and monitoring of market operations to prevent collusion and encourage innovation. The report concludes that while some oligopoly situations are unavoidable, there is a need for reforms to improve competition and product standards in the Australian market.

Running Head: Oligopoly Markets
Oligopoly Competition in the Australian Market
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Oligopoly Markets 2
Oligopoly Competition in the Australian Market
Introduction
Oligopoly competition is a situation where the players serving a market are fewer, but
some of the largest players dominate the market. The newspaper article “Australia isn’t
dominated by big businesses that gouge customers: Grattan report” written in December 2017 by
Minifies, Chisholm and Percival, tells us of the existence of oligopoly competition in the
Australian market. This type of competition has raised issues in the market and therefore has
been considered not effective for the markets. This paper clearly notes that this type of
competition has fallen over the years. However, despite falling in some industries, it has gone up
in others like the banking industry.
This analysis will try to see some of the reasons why the policy makers discourage this
type of competition. The analysis will be useful to all the industries falling under oligopoly
competition as it will help them in understanding what is right and what practices to avoid. The
paper shall also be used by the policy makers in implementation of their rules and regulation
because it will highlight the most important factors that make this type of competition
undesirable. Ensuring that there is good competition in the market is an important role for the
government.
Economic Analysis
Without competition, the market players have power both on quantity and price. This
means that they can raise or lower prices whenever they deem necessary. The article clearly
notes that sometimes there is spike on fuel prices and that health insurance premiums rise rapidly
every year (Minifie, Chisholm and Percival, 2017). This is a good example of misuses of the
market power that these firms possess. The article has a notion that the concentration of
oligopoly firms in Australia has reduced to 15%. This means that many firms have been
established and joined the market. The worst characteristic of oligopoly markets is that they have
barriers to entry. This is what keeps the firm dominating the market, in an economy with less
regulation of this type of competition, new firms are discouraged from entering the market by the
large firms. They are able to do this because they have power over prices; when faced by an
entrance situation, they lower their prices to lower levels such that the entrants fail to continue
operating at a loss. This is because they have high economies of scale compared to the new
entrants.

Oligopoly Markets 3
One of the industry noted in this paper to have oligopoly competition is the
telecommunication industry where the customers have less alternatives; irrespective of the prices
charged, the consumers will continue purchasing the products. The banking industry and
pharmacies are constrained by regulation such that entrance is not easy; it’s very expensive to
start a bank because of the minimum requirements set by the authorities. In this case, four of the
largest players earn two third of the total profit while the rest is earned by all the other small
players (Kaye and Westbrook, 2016). The most common oligopolies in Australia have been the
supermarket giants Coles’ and Woolworths.
Fig: Oligopoly in Australian supermarkets
Source: Mortimer (2013)
The rise of Aldi and Costco has contributed to the decline in the dominance of the two
firms, however, the supermarket industry remains to be an oligopoly; the two supermarkets have
continued enjoying the largest market share. The big four banks in Australia has increased their
market share through mergers and acquisitions. Sources have concluded that companies with
strong barriers to entry are profitable by 20% more than those with less barriers (Minifie, 2017).
Other than this entrance discouragement, the oligopoly firms may decide to operate as
one and conspire to form cartels. This is the worst pricing strategy that they could make and thus

Oligopoly Markets 4
a need for increased regulation. Cartels follow the leader player in their pricing decisions, when
the leader raise the price, they all raise their price, and vice versa. According to Strong (2016),
due to lack of competition, the growth of business is limited and the products remain to be of
lower standard since innovation is not applied to produce standard goods. An example is the
slow telecommunication system due to dominance by fewer firms.
Recommendation
Consumers and small firms experience great weights with the banking industry since the
increased regulations caused the cost to rise. The policy makers should consider this a challenge
to the banking industry and ease their regulations. The policy makers should greatly intervene in
the case of a collusion between the players because this would hurt the consumers as they
collude to give them more power to raise prices. The government should ensure that these
players compete against each other by continually monitoring their operations, this is because
their competition is beneficial to the consumers. There is a need for a tougher reforms by the
government in order to promote competition in the Australian market. The government should
consider the standard of product in the formulation of reforms. It should not always consider that
consumers are enjoying buying the products at a reduced price.
Conclusion
Some oligopoly situations cannot be eliminated in an economy. Like the banking,
telecommunication and pharmacies, these businesses need strict regulations. Furthermore the
startup costs are very high. Oligopolies do not hurt the consumers in all cases; for instance when
the players are creating barriers to entry, they offer low prices that offer much benefits to the
consumers. However, due to lack on innovation, the output from these players is always of low
standard.
Although there is some argument that most oligopoly players have lost their market
share, this is not evident that there has been an improvement in competition in the Australian
market. Still there is no sufficient competition and thus the action of policy makers should be
reformed. By promoting competition, the Australian government will also be improving the
standard of the products offered in the market.

Oligopoly Markets 5
Bibliography
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needs-more-reform-idUSKCN12E0F3 [Accessed 26 Apr. 2018].
Minifie, J. (2017). Why oligopolies are not dominating consumers. [Online] Financial Review.
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