Written by Daniel Chenu, B Economics B Advanced Studies (Economics and Political Economy)
All businesses are equal, though some are more equal than others.
Australia’s free market has long favoured the few over the many when it comes to large, high-cost industry.
Two main supermarkets, four main banks, four main insurance providers, four main airlines.
This came about structurally. A disproportionately large GDP to our population means Australian demand can be fulfilled with few firms in industries with high fixed costs, creating significant barriers to entry and a sticky competition deficit.
Despite this, the land of the oligopoly has still been able to call itself “lucky” for the better part of the 21st century. The traditional issues with uncompetitive industries (competition infringements, high mark ups etc.), while still present, have historically caused little concern among consumers and government. As recent as 2017, the Grattan Institute think tank found that oligopolistic industry profits did not vary much from comparable competitive markets found overseas and that consumers were even “benefitting from large firms’ economics of scale”.
Though times have changed. The post-covid cost-of-living crisis is here, and it seems the first thing to blame is market power. Particularly in the supermarket sector, social media and populist Greens campaigns have villainised Coles and Woolworths for increasing prices by roughly 10% in the last 12 months and simultaneously making 1.1 and 1.6 billion dollars in profit, respectively. This figure comes at a bad time for the public image of the duopoly, given that more and more Australians are working paycheck to paycheck as inflation worsens and interest rates continue to be tightened.
It wasn’t long ago that another large Aussie brand came under fire for seemingly complacent business practice. Qantas’ higher ups were grilled at the end of last year for the illegal sacking of 1700 workers during the pandemic and selling tickets to flights that had already been cancelled -- certainly an exercise of market power. This all happened while Qantas Group lobbied the Albanese government to stop more Qatar flights coming into Sydney, preventing any possible turbulence in their 61% market share.
With the fallen grace of businesses so significant to the Australian identity, the public aren’t happy. It seems this is turning the tide on Australia’s competition problem.
The ACCC has launched two major inquiries into the anti-competitive practices of Qantas and the supermarket duopoly, receiving huge media and public attention. It has seen their CEOs, both veteran industry titans, Alan Joyce and Brad Banducci put on blast at senate inquiries to fess up on their alleged abuse of power in their industries.
While no conclusions have been made yet, even if the investigations find no evidence of dodgy conduct, they have caused significant challenges to the complacency of oligopolists both by government and, more importantly, the public.
So while these giants will likely go unscathed, with the Qantas inquiry being dropped and Anthony Albanese denying any possibility of a “soviet-style” supermarket break up, Australians have been hit home with the dangerous capabilities of oligopoly like never before.
With this public anger has come newly proposed ACCC merger and acquisition laws that will bring a long-awaited change to the competitive landscape of Australian industry. Under the changes, the competition watchdog must be notified of every single M&A deal in the country, rather than tediously searching for potentially anti-competitive ones itself. This will have the power to limit the growth of the next Woolworths, regulating big businesses that gain market power from picking off little competitors over time.
More Australians are concerned with these timeless businesses than never before, and as a result, so is the government. Could this mean a new, more competitive Australia?
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