Oligopolistic Market Competition in Australia-Samples for Students

Question: Discuss about the Monopoly, Duopoly Oligopolistic Market Competition in Australia. Answer: Introduction Many businesses in Australia operate under imperfect competition. By imperfect competition it means that the market prices are not determined by the supply and demand forces. Oligopolistic, monopolies and duopolies market structure are price makers. In oligopoly market, the players are few and large in size; whereas there may be many small players in the market, there are few giants who control the largest market share (Irvine, 2010). The competition between the giants is in terms of output but sometimes on prices. The power of control possessed by these giants creates barrier to entry for other interested investors (Strong, 2016). They may do this by cutting their prices and thus making it less profitable to entrants without the economies of scale (Dimech, 2014). The giants maintain a constant behavior of monitoring their rivals behavior as it has a great influence on their performance. This is because the goods sold in this market are similar but differentiated; if a rival lowers its own price, it may attract many customers and increase its share of the market. To prevent losing the market share, all other firms follow and cut their prices. Contrary, when a rival raises its price for goods, it will lose its share of the market since the other firms do not follow. The description of this market structure will be of help to the business investors to identify their market structure and thus facilitate their pricing decisions wisely. The government will also establish the factors responsible for the existence of oligopoly markets and their negative impacts; solutions will be recommended. Analysis Stephen Letts the ABC new business reporter is the writer of the article NBN to entrench broadband oligopoly: analysts in 2016. The major oligopoly groups are noted to be the supermarket giants, the banks and the telecommunication industry (Kaye and Westbrook, 2016). Also some of the giants are noted to be operating in a duopoly market structure. The returns raised by oligopolies are very high. The Australian economy has for long been an oligopolistic economy; however, the good days for the giant businesses are coming to the end as many firms are entering the oligopoly markets (Padley, 2013). This will result in a declining returns to the giants as the new entrants gain a share of the existing market. The entrance have been enabled by the Australian Competition and Consumer Commission's (ACCC) shift to industry structure and market rather than policy pricing employed before (Letts, 2016). The oligopolies are crumbling, however, there is a high possibility that an oligopoly will be bu ilt in the telco market as Telstra the quasi-monopoly market is breaking down. The article notes that the roll out of National Broadband Network will create a room for four players only. The entrance of new firms into the broadband industry according to Morgan Stanley the Telstars analysts is that each additional firm will result in declined revenue for the already existing firms. Telstra has been legendary in making 80% of the broadband industry total revenues; this left only a 20% revenue for all the other players. The breakdown has resulted in Telstras market share falling by 20% to 60%. This has raised the proportion of revenue left for the other players. The four major players in the broadband industry are; Telstra, TPG, Optus and Vocus. According to Smith (2015), the aggressive growth of Vocus and TPG has contributed to the shrinking of players in this industry. According to Parkinson (2016), main emphasis of ACCC is on the need for increased competition in the Australian markets; a need to eliminate the dominance of a few firms in an industry. The percentage of market share for TPG in the retail market is about 27% while that of Vocus is 8%. Morgan Stanley noted that if the smaller firms are able to offer cheaper products, they would lower the dominance of the giants. Despite the fact that ACCC is struggling to end the oligopoly dominance, Telstra breaking down to an oligopoly is better than being a monopoly. Recommendations The governments regulation and monitoring of oligopoly firms should be maintained always as without regulation these giants can exploit the consumers. The government should give the ACCC mandate to take to court all the businesses that are caught practicing uncompetitive market conducts. Its not all the market structure that can become competitive, however, its the governments responsibility to ensure that fair pricing is maintained by all businesses. The government should also ensure that it makes it attractive for international firms to invest in Australian; one way would be by changing the Australian tax structure to be more supportive to investment. Conclusions Oligopolies and monopolies have one thing in common, they are price makers. For this reason, they are inefficient and unfair to consumers. They may collude to charge higher prices which is a disadvantage to the consumers, or they would slash their prices to create an entry barrier which is a disadvantage to new entrants. Consumers benefit much when the firms decides to create a market barrier by slashing prices. This barrier is a way of discouraging increment in competition and thus it enables the giants to charge high prices thereafter. The primary objective of the ACCC is to promote competition in the Australian markets. So far it can be said to have achieved this objective as many oligopolies dominance have been reduced in addition to Telstra breaking down from being a quasi-monopoly to an oligopoly. At the current trend, there is still an increasing probability that Australian broadband industry is going to be more competitive. The Australian consumers and suppliers are happy with the actions of the ACCC. The lower number of firms in an oligopoly market not only negatively impact the consumers, but also the suppliers. Suppliers market is limited and thus sell at a lower price the giants offer References Dimech, A. (2014). Australian Oligopolies. [Online] Adonline.id.au. Available at: https://blog.adonline.id.au/oligopolies/ [Accessed 18 Aug. 2017]. Irvine, J. (2010). Get out of monopoly free cards can't be left to the roll of the dice. [Online] The Sydney Morning Herald. Available at: https://www.smh.com.au/federal-politics/political-opinion/get-out-of-monopoly-free-cards-cant-be-left-to-the-roll-of-the-dice-20101026-172ax.html [Accessed 18 Aug. 2017]. Kaye, B. and Westbrook, T. (2016). Australian watchdog says bank 'oligopoly' needs more reform. [Online] Reuters. Available at: https://www.reuters.com/article/us-australia-banks-idUSKCN12E0F3 [Accessed 18 Aug. 2017]. Letts, S. (2016). NBN to entrench broadband oligopoly: analysts. [Online] Abc.net.au. Available at: https://www.abc.net.au/news/2016-04-08/nbn-to-entrench-broadband-oligopoly/7310228 [Accessed 18 Aug. 2017]. Padley, M. (2013). Oligopolies as safe as money in the banks. [Online] The Sydney Morning Herald. Available at: https://www.smh.com.au/money/investing/oligopolies-as-safe-as-money-in-the-banks-20130916-2tvlk.html [Accessed 18 Aug. 2017]. Parkinson, G. (2016). South Australia takes on energy oligopoly in push for more renewables. [Online] RenewEconomy. Available at: https://reneweconomy.com.au/south-australia-takes-on-energy-oligopoly-in-push-for-more-renewables-77115/ [Accessed 19 Aug. 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 18 Aug. 2017]. Strong, P. (2016). Why Australias love affair with oligopolies needs to end. [Online] SmartCompany. Available at: https://www.smartcompany.com.au/business-advice/legal/why-australias-love-affair-with-oligopolies-needs-to-end/ [Accessed 18 Aug. 2017].