Monopoly, the Australian Economy and the ACCC - What Does History Teach Us?

By: AUSBUY

Australia is not a large economy, but it is a significant force in world trade.

To be competitive in the market we need economies of scale, but at the same time recognise that companies who achieve monopoly pricing power and can increase their profit by exercising that power soon become lazy and inefficient.

The Australian Consumer and Competition Commission (ACCC) is the statutory body tasked with the duty of judging when market power is excessive. Most companies make the majority of their money in the Australian market, and as such wish to merge with other companies to achieve domestic dominance. The merger is usually supported by statements as to how much more efficient they will be. The combination of the media talking about job losses and the administration required to run the enlarged company means that these efficiencies are almost never achieved. Using pricing power is usually the way profits are increased.

The most significant influence in the growth of western economic thought and the influence of the market was a Scotsman, a philosopher not an economist, named Adam Smith who published five books in 1776 called “The Wealth of Nations”. Almost none of our politicians have read the five books, but all quote selected bits to support their policies. One of his main beliefs was the efficiency of a free market and its appeal to enlightened self interest. This philosophy underpinned the western democracies over the last two centuries. However he also believed that the governments had a vital role to ensure that the markets remained free. This is often ignored. Over the years his words were used to justify both inaction and overregulation. One thing is clear. A free market could not co-exist with a monopoly that will eventually result in inefficiencies and higher prices to the community. In situations where monopolies are inevitable, like water and power, they should be owned by the State. This may result in inefficiency, but will prevent abuse of power.

Most countries have laws which allow them to act against monopoly power, but Australia’s laws are both legally weak and badly applied. Action has to be taken against people abusing market power and that is difficult to prove and expensive. Governments have not made the situation any better by privatising natural monopolies (airports, etc.) and by so called public/private partnerships.

The ACCC have long complained about deficiencies in the law, but have themselves watched the growth of market power in certain areas, while they have not made clear the areas of the law which require strengthening.

An example of this is the concentration of power by the two major supermarkets that have 80% of the grocery market. There is no suggestion that they are abusing their power to rip off the consumer, but there is no doubt that negotiations between them and local suppliers are not a contest between equals. We are not against the growth of Coles and Woolworths, but this should be directed towards new areas where their efficiency can benefit the public and local suppliers.

Many people will believe that this problem is of little interest and does not concern them. Nothing could be further from the truth. Diverting orders to overseas multinationals may, in the short term, save money but may, in the long term cost them their job.

Our politicians must act to preserve competition and diversity in the Australian market for the future good of all Australians. The defence of monopolies will be based on claimed efficiency and the need to compete globally, but there is no evidence to support either argument.

The government has recently been working on the definition of market power. It is a delicate balance. Do we want power to remain in Australian hands or open the market up to foreign competition which has even less regard for our jobs, profits and decisions being made here? We realise it is difficult if small business is to thrive in Australia. That is why AUSBUY believes we must support them first before foreign ownership.

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