Oligopoly Market Structure In Australia: Analysis And Recommendations

Discuss about the Oligopoly Market Structure in Australia.

All the markets in the world are comprised of four market structures; the perfect competition, oligopoly, monopoly and monopolistic. This paper will cover the oligopolistic market structures in Australia and will be useful in determining the outstanding features of these markets. An oligopoly market is one where the sellers are many but there exist some few giants that dominate the whole market. Some of the features expected to be noted are those of differentiation of products, pricing strategies, the nature of competition, etc. There are different industries in Australia that fall under oligopoly structure. Kitney and White (2013) noted that Australian economy is an oligopoly economy. This paper will also be important to the management of such firms to understand their markets structure. Understanding the structure in which a business falls is important in the decision making especially those that influences prices and output. In our case here, we shall find out that the businesses in oligopoly structures may be employing dishonest strategies that helps them be able to gain some market power. The paper shall also determine whether it is more profitable to run an oligopoly business or the other market structures. It will therefore open the mind of some business owners for better decision making

Huge companies will always exist in an economy since some businesses grow faster and depending on the business owners, expansion is experienced faster in some. In Australia, one of the biggest huge companies is the air transport industry. An economy’s national productivity is not added by big oligopolies. According to Strong (2016), this big businesses inhibit growth by impeding innovators. When oligopoly firms are left to operate on their own, they usually misuse their market power, another oligopoly industry in Australia is that of the telecommunication industry; the dominance by one company has resulted in the Australian economy experiencing the slowest and costliest system ever. This has inhibited innovation and the growth of businesses. In order to manage oligopolies, the competition regulations has to be well-written and well-regulated. In Australia, oligopolies are regulated by the Australian Competition and Consumer Commission (ACCC) (Strong, 2016). The other industries falling under oligopoly are the banking and insurance industry (Smith, 2015).

Financial resources are some of the barriers that prevents free entrance into an oligopoly markets. There also other government regulations requirements that also act as barriers. The competition on this market is sales-based and not price based (Klijn, 2015). This is because the goods sold by the participant have a high degree of product differentiation. The availability of close substitutes deems it impossible for one participant to raise its own price since consumers will shift their demand to others whose prices are lower. The business’s demand will fall and eventually it will result in losses. To avoid this situation of losing some market share, the participants always avoid raising their prices. However, also, a price decrease does not increase the market share of the firm that uses this strategy since all other firms follows. The firms therefore earn greater profits only by selling more units since they sell at the same price. In an oligopoly competition, the firm’s decision on its selling strategy affects the decision of all other firms. Thus, there is continuous monitoring of all other participants by every firm.

Recommendations

Some of the strategies implemented by the biggest player are aimed at getting some of the small players out of the market. The supermarket industry also falls under oligopoly structure. According to Andrew (2014), the proportion of market share held by Coles and Woolworth is 70 % – 80 %. There has been many bad allegations over the operations of the two supermarkets. One is that they are using their market power to buy goods from farmers at very low prices (Andrew, 2014). The Coles and Woolworth has been taken to court owing to some misconducts indicating an abuse of market power.  The regulator of National weight and measures fined Coles and Woolworth for the discrepancies between the actual weight of their product and what they has listed on their products.  Another example of misconduct by Coles is given by Keating (2014) where Coles is taken to court by Fair Work Ombudsman for unfair treatment of the trolley collectors. Strong noted that all oligopolies are not bad; they are only bad when they employ poor policies.

The greatest problem facing the Australian economy is that the enforcement of competition rules is poor. For instance a firm may undertake an anticompetitive action and be neglectfully be allowed to do so. An example is when a company buys another to slow down competition. E.g. The Bunnings Warehouse purchased the Hardwarehouse. The ACCC permitted this but in the real sense it was meant to reduce competition. The reason why the domination of oligopolies is not good in an economy is that if there is a company tax, only are few companies benefit and thus it doesn’t stimulate business expansion (Grudnoff and Richardson, 2017).

Not only does the domination of oligopolies and poor regulations affect the national productivity, employees, consumers, contractors and the suppliers also suffer. Therefore, efficiency should be improved by equipping the ACCC with the best regulatory tools. The idea of Australia being a home for corporate oligopoly is coming to an end since the digital economy is reducing entrance costs. If entrance costs were reduced and competition regulations enforced efficiently, the oligopoly market structure could be very good for an economy. This market structure is better than the perfect competitive markets since the competition is lower.

Conclusion

Similar products sell at the same price in an oligopoly market. The participants always avoid price wars. The competition is always on the volume of sales. Oligopoly markets may develop a common strategy (collusion) that will enable them to raise prices together. This is the reason why the regulation by the government is essential in this market. Collusion takes away competition and allows the firm some monopoly power.  Future national productivity is determined by small and medium business owners.

References

Andrew, (2014). Australian Oligopolies. [Online] Blog.adonline.id.au. Available at: https://blog.adonline.id.au/oligopolies/ [Accessed 10 Apr. 2017].

Grudnoff, M. and Richardson, D. (2017). Oligopoly money. [Online] The Australia Institute. Available at: https://www.tai.org.au/content/oligopoly-money [Accessed 10 Apr. 2017].

Keating, E. (2014). Coles admits “ethical and moral responsibility” to trolley collectors in Fair Work undertaking. [Online] Smartcompany.com.au. Available at: https://www.smartcompany.com.au/business-advice/legal/coles-admits-ethical-and-moral-responsibility-to-trolley-collectors-in-fair-work-undertaking/ [Accessed 10 Apr. 2017].

Kitney, D. and White, A. (2013). We are an oligopoly economy: Robb. [Online] Theaustralian.com.au. Available at: https://www.theaustralian.com.au/business/companies/we-are-an-oligopoly-economy-robb/news-story/606fcf2f0e789689d39fd40f19b8a1e9 [Accessed 10 Apr. 2017].

Klijn, W. (2015). Study finds Australian oligopoly premium. [Online] Theinstoreport.com.au. Available at: https://www.theinstoreport.com.au/articles/study-finds-australian-oligopoly-premium [Accessed 10 Apr. 2017].

Smith, M. (2015). The death of the oligopoly: Australia's incumbents face new rivals. [Online] Financial Review. Available at: https://www.afr.com/brand/chanticleer/the-death-of-the-oligopoly-australias-incumbents-face-new-rivals-20150421-1mq11b [Accessed 10 Apr. 2017].

Strong, P. (2016). https://www.smartcompany.com.au/business-advice/legal/why-australias-love-affair-with-oligopolies-needs-to-end/. [Online] Smartcompany.com.au. Available at: https://www.smartcompany.com.au/business-advice/legal/why-australias-love-affair-with-oligopolies-needs-to-end/ [Accessed 10 Apr. 2017].