New research from the e61 Institute reveals competition in Australia in dire straits, more concentrated than the United States
Canberra, 30 August 2023 – A new report released today by the e61 Institute titled The State of Competition in Australia, highlights the headwinds that high and rising market concentration pose to competition and living standards in Australia.
The report revealed that in 2017, the top four firms had a market share of over 70 per cent in 12 per cent of industries. The sectors where this was most evident are in the mining, utilities and manufacturing sectors.
This puts Australia at a disadvantage globally, for example, the United States has high levels of concentration across just 2 per cent of its economy.
Co-author, Research Director and Head of Policy Engagement at the e61 Institute, Dan Andrews said, “as industries become more concentrated, it is less likely that corporate behemoths get toppled, dynamic upstarts emerge and consumers get a good deal. Our findings add further weight to the notion that competition has declined in Australia.”
“We hope by releasing this report, which utilises cutting-edge datasets, we are able to provide fresh analysis on the effects that market concentration has on Australia’s economy.” Mr Andrews said.
Elyse Dwyer – an e61 economist and report co-author – highlighted a case study examining the anti-consumer effects of local market concentration using microdata from service stations.
“From 2007 to 2021, the fuel retailing sector has experienced a sizeable increase in concentration levels nationally, and we wanted to understand the impact that has on consumers and the market more broadly.” Ms Dwyer said.
“We found that petrol stations subject to less local competition charged higher wholesale margins on average.”
“In 2022, as wholesale costs rose, margins fell at a slower pace in more concentrated markets, which suggests that a lack of competition can reduce the incentive to absorb a cost increase.” Ms Dwyer said.
In an accompanying Micro Note also released today As the clock strikes midnight: The competitive impact of stealth M&A in Australia, the e61 Institute explore whether Australia is letting anti-competitive deals go unnoticed.
“With rising concentration, it’s critical we understand the full extent to which mergers and acquisitions impact the state of play of competition nationally,” Ms Dwyer said.
“Australia’s competition regime currently lacks mandatory reporting for mergers and acquisitions. While this voluntary system works well for larger transactions, we worry that there is a tendency for small transactions to go unnoticed or appear immaterial, but the cumulative effect can add up quickly.”
“In 2008, we saw a relaxation of suggested reporting requirements to the Australian Competition and Consumer Commission (ACCC), which we have analysed to find it has led to a significant decline in mergers reviewed by the ACCC.” Ms Dwyer said.
The research on mergers and acquisitions explores an important policy lever to address the poor state of competition identified in the overarching research.
Dan Andrews reiterates the policy implications, noting that “our findings raise concerns about the state of competition in Australia, underscoring the importance of the Treasury-led Review into competition policy settings announced last week.”
“The Review is right to focus on Australia’s merger regime – which is of out-of-step with international best practice – as well as anti-competitive non-compete clauses, which are quite prevalent in the Australian labour market, according to e61 analysis.
Promoting competitive markets in Australia also hinges on addressing other regulatory barriers, including overly restrictive land-use regulations and the government procurement system – both of which excessively favour incumbent firms” Mr Andrews said.