The widely held belief that powerful firms control the Australian economy is a myth, according to a new Grattan Institute report.
Competition in Australia: Too little of a good thing? shows that the market shares of large firms in concentrated sectors in Australia are not much higher than in other countries and that they have they not grown much lately.
But the report shows that where a few firms dominate markets, they earn higher profits.
Up to half the total profits in the supermarket sector (dominated by Coles and Woolworths) are ‘super-normal’ – that is, profits that exceed the cost of compensating shareholders.
In the banking sector (dominated by the Big Four), super-normal profits account for 17 percent of total profits.
Other companies and sectors with substantial super profits include Telstra, some major city airports, liquor retailers, internet service providers, sports betting agencies, and private health insurers.
“There’s nothing wrong with profits – they play an important and legitimate role in the economy and society,” says Grattan Institute Productivity Growth Program Director Jim Minifie.
“But where profits become super-profits because firms face little competition, they can come at the expense of customers or suppliers.
“There are no policy silver bullets here, but governments can do more to improve competition in the private economy.”
The report urges governments and regulators to do more to ensure customers get a good deal, especially in highly concentrated sectors where big firms have market power and potential competitors face high barriers to entry.
To intensify competition in banking, governments should free-up customers from the control of their current bank by making it easier for people to switch banks.
In the supermarket sector, where the big incumbents have expanded into liquor and petrol retailing, governments should consider relaxing zoning restrictions that limit the entry of new competitors.
Constraints on competition in retail pharmacy should finally be removed, as many reviews have suggested.
Regulators can put more pressure on electricity distributors, ports and airports, and on health insurers.
And governments need to make it less complex and confusing for people to compare and switch providers of retail energy, and superannuation.
Further enquiries: Jim Minifie, Productivity Growth Program Director
T. 03 8344 3637 E. media@grattan.edu.au