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Market Structures In The Australian Economy

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Question:

Discuss about the Market Structures in the Australian Economy.

 

Answer:

Introduction

The diversity of the Australian economy is eminently presented in terms of the existing market structures. In the modern day, there are scores of firms that have characteristics of monopoly, duopoly, oligopoly and the monopolistic competition. Beforehand, understanding of the manner in which market structures have been set up in the Australian economy calls for a vital exploration of their existence. So first of all monopoly indicates a market structure that is averse with few a dominant producer who makes all decisions involving the goods and services in the economy. A monopolist is therefore able to make profits both in the long and short run. The service industry in Australia is particularly rife with the presence of monopoly particularly the telecommunication and the banking industries where there are only four dominant firms that control a large proportion of the market.

When relatively smaller firms exhibit a huge market dominance visibly indicated by the presence of tough restrictions for the entry and exit of firms in the market then that implies oligopoly. A common distinct feature that oligopolistic firms have is the presence of a kinked demand curve which is indicative of a common price system for the overall achievement of a greater output. On the other hand, monopolistic competition is augmented by the basis of many firms which have differentiated products in terms of sorting, offering after sales services and branding (Leigh & Triggs, 2017). In this market structure, there a lot of emphasis on advertising in order to capture a bigger market share. While these market structures are generally important for increasing competition in the industry which ensures that consumers are able to get a better quality and service delivery, it has also raised concern from the government as well as consumer protection societies. This has raised their eyebrows because most of the firms that accentuate these market structures are particularly taking an advantage of their strong market presence to exploit innocent customers. Furthermore, the government’s concern is centered on the market alliances which are apparently jeopardizing quality as well as the stability in the market. In the long run, it will likely cause chaos and eventually weaken the economy.

 

Market Structure: Economic Analysis

This type of market structure is developed in terms of providing room for only a number of firms which have control in the market. Distinctly, products generally exhibit a high degree of differentiation. This implies that there is a sense of the ability of the firms to establish an edge over others due to a higher chance for collusion agreements (Simshauser, and Whish-Wilson, 2017). In this case, firms will often team up to restructure into a very bigger firm. This then have a bigger market share than the rest of them. Despite this eventuality having a stronger sense of monopoly, it also signifies the oligopolistic competition due to the presence of a lot of these firms even in the event that collusion has taken place (Kitney & White, 2013).  Within the same scheme, it pays homage to the duopoly.

Duopoly is primarily an offshoot of an oligopolistic structure. It is based on a similar structure of its parent structure however much duopoly only has two firms that have a dominant presence in the market. Essentially, there presence is motivated more by the need to compete for a greater output. It therefore means that a decision that is made by one firm has bigger influence on the rest of them and likely to result into a series of similar decisions. This will then have a bigger impact on the manner that the products will be sold in the market as a result. The rest of the firms will follow this move hence making a general impact on the demand and supply of goods and services in the market.

The concept of elasticity is well accentuated in this market structure on the producers more than it is felt by the consumers. Key producers in Dulux, Brigdestone and Dunlop have put in mechanisms such that a move by one of them will result into a sequences of the same across the market which eventually affects the demand and supply of the tyres in the industry. The aforementioned firms are chiefly similar by the manner in which they deal with the same products. A key feature is that the aggregate supply and the aggregate demand are established by the undertaking an intensive advertising initiative. This may include a tailor-made branding meant to ignite consumer interest.

A monopolist on his/her part is able to ensure a blanket control of the market through determination of prices. That means, maximization of the output can be achieved both in the short and long run. Nonetheless, three key aspects have to remain in play in the quest for such output maximization.  They include the Marginal Cost (MC), Marginal Revenue (MR) and the Average Revenue (AR). For output to be maximized, these three have to remain central in the market. For instance, the Average Revenue is represented as the market demand. The relationship of the quantity demanded and the Marginal Revenue is established by the value attached to the MR. for instance, a positive MR shows that there is an increasing revenue with an increase in the quantity demanded while a negative MR alludes to a decreasing revenue with a decreasing quantity demanded. Firms will usually show their intent to produce maximum output in a point where the MR curve equals the MR curve. At this point, Revenue is taken as the function of Output (Daepali, 2016). 

Monopolistic competition is particularly different of the all the market structures owing to its similar but differentiated products which comes in the form of sorting and branding. The presence of similarity through products that are sold in the market, means that firms engage in scores of activities that such advertising to get an edge in the market. The concept of elasticity plays a key role in creating this competitive edge through sensitivity of products in the market as expressed by consumers (Kollmorgen, 2015). In this regard, consumers will often opt for cheaper products, those that are advertised more as well.

The diversity of the Australian economy is particularly reflected in its market share of monopolies. Comparing the top three Australian sectors with the US firms reveals extensively different statistics. The United States has 10%, 26% and 31% in the Liquor industry, Commercial banking and Supermarkets respectively. On the other hand, the Australian economy has 78%, 94% and 91% respectively.  The conclusion is that the Australian economy has a very strong monopoly presence than the US economy. A major concern by the Australian government due to the presence of this is that monopolistic competition is likely to forge an increment in the market returns on capital while the downside is that it could also stifle economic growth. Monopolies particularly are deterrent to diversification as well and killing competition.

Conclusion

In essence, the rife presence of diverse market structures in the Australian market in terms of the monopolies, monopolistic competition, oligopolies and duopolies may not be concluded as a cause of a rise in the inequalities but plays a bigger role. Averting this calls for radical policy implementation. In other words, anti-competitive behavior and consumer rip-offs must be removed in the market. Furthermore, the Australian Competition and Consumer Commission must have a bigger budgetary allocation so that it proceeds with investigations of conduct by unscrupulous business people in a bid to have all them out of the system. It is only through this that healthy competition can be spearheaded. 

 

References

Kitney, D., & White, A. (2013). We are an oligopoly economy: Robb. Australian Business Review. Retrieved from: https://www.theaustralian.com.au/business/companies/we-are-an-oligopoly-economy-robb/news-story/606fcf2f0e789689d39fd40f19b8a1e9

Daepali, P. (2015). Monopoly in a Perfectly Competitive Market. Retrieved from: https://www.economicsdiscussion.net/monopoly/monopoly-in-a-perfectly-competitive-market-with-diagram/16454

Kollmorgen, A. (2016). Squeezing out the competition. Market share Australia. https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/market-concentration

Simshauser, P. and Whish-Wilson, P. (2017). Price discrimination in Australia's retail electricity markets: An analysis of Victoria & Southeast Queensland. Energy Economics, 62, pp. 92-103.

Leigh, A., & Triggs, A. (2017). It's Time To Put Markets Ahead Of Monopolies, Huffington Post. Retrieved from: https://www.huffingtonpost.com.au/andrew-leigh/its-time-to-put-markets-ahead-of-monopolies/

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