Economics Australian Economy

Question: Discuss about theEconomics for Australian Economy. Answer: Introduction A variety of market structures are at play in the Australian economy. Out of these, one that is the most common is undoubtedly oligopoly. Thus type of market structure refers to a situation when there are only a limited number of sellers in the market. One of the specific conditions under oligopoly is called as duopoly which essentially refers to the presence of two big sellers in the market[1]. An example of duopoly in Australia is the organised retail which comprises of namely two sellers i.e. Coles and Woolworths. Another structure present in the Australian market is the monopoly. Australia Post is an apt example of monopoly since it serves as the only major player which operates post related services in Australia. Yet another example of monopoly was the taxi service before the penetration of Uber in the market. Monopoly is considered a market which is characterised by the presence of just one seller. Due to lack of competition, this structure leads to inefficiency since the selle r aims to maximise the underlying profit and thus leads to high amount of deadweight loss[2]. Monopolistic competition has only limited presence in the Australian economy. The given essay aims to highlight the presence of the above market structures in context of Australia. Monopolistic Competition - Australia The prevalence of monopolistic competition is rather limited in Australian market. An example which could come close in this regard would be hotel business. The hotel industry is characterised by the presence of competition that is not perfect as the service offered by various hotels is not of the same level. Another instance of monopolistic competition would be online gaming market in Australia. While a majority of market share is held by Sportsbet and Tab Corp, but besides these, a number of small players are also active in the market which collectively represents a significant market force. In the recent past, the two large players made a vain merger attempt which in case of success would have led to monopoly formation[3]. The characteristics of this market structure are indicated below[4]. The presence of sizable players engaged in both buying and selling. Heterogeneous products are sold in the market. There is some amount of price control exhibited by the sellers. Limited barriers are present related to entry and exit. Oligopoly-Australia In line with the above definition, a market where the sellers are limited is called an oligopoly. One of the possibilities in these markets is the existence of collusion between the different sellers for profit maximisation which in turn is unfavourable for consumer interest. One example in the Australian context relates to the existence of major players in the form of Woolworths and Coles as the two dominant players in the supermarket industry. As these are involved in a fierce rivalry, hence a given firms decision are dependent on the competitors decision. In the recent times, with the penetration of foreign retailers like an Aldi, the organised retail industry is gradually leading to an oligopoly[5]. The Australian retail industry is characterised by the various features related to an oligopoly[6]. There are barriers related to entry and exit that exist primarily in the form of huge investments and supply chain setup. Besides, price differentiation, quality differentiation also tends to exist. The firms tend to heavily influence the pricing and tend to the price makers. Duopoly-Australia Essentially duopoly is not a separate market structure but is a sub-type of oligopoly. Unlike oligopoly where the market power is concentrated between three to five sellers, duopoly is a market structure where the market power is shared by two dominant sellers only. In such a market, the suppliers usually are squeezed especially when price based competition is significant which is the case between Coles and Woolworths[7]. However, these are beneficial for the customers who tend to reap low prices on an ongoing basis. Since the two players seek to outdo each other, there are specialised economic models which are often deployed in order to facilitate decision making in such scenarios. Besides, specialised economic models, game theory is also relevant in such markets[8]. This is primarily because the decisions tend to be dependent on one another. Further, in such market, it may be very difficult to build inroads due to large entry barriers as has been experienced in the Australian marke t. Monopoly-Australia An apt example of monopoly in Australia is the taxi services market which was completed nominated by the Canberra Taxi. However, with the penetration of Uber in the market, this monopoly has been broken to some extent as consumers have a credible and cheaper alternative in place[9]. In the process, the consumers are benefitted as the prices decrease and also there is improvement in overall efficiency levels. The monopoly existence in market in the pre-Uber time may be explained as below[10]. Substitute availability was not there, hence no competition existed and consumers had to avail the service at high prices. Further, through the use of technology and sizable fleet, the various costs were rationalised which implied supernormal profits coupled with the pricing power that these commanded. The entry barriers were high due to the underlying backend infrastructure and fleet requirement. Conclusion It may be logically derived on the basis of the arguments presented above that Australia as a market has exposure to a host of market types. Amongst these, the most common market type is oligopoly which is quite common in the retail industry. However, the rather uncommon market type is monopolistic competition which to an extent is visible in the hotel business. In relation to monopoly, gradually these are being eliminated which is good for the consumers and the industry. An example of the same is the taxi industry post introduction of Uber. Further, different market type have different characteristics in relation to market power with participants, number of sellers and barriers to entry and exit. References: Cummins, C., Influx of international retailers shaking up retail sector shows no signs of abating, The Sydney Morning Herald, 17 November 2015, https://www.smh.com.au/business/property/influx-of-international-retailers-shaking-up-retail-sector-shows-no-signs-of-abating-20151117-gl0ws5.html (accessed 1 December, 2016). Heffernan, M., ACCC's Rod Sims says Woolworths has more problems with suppliers than Coles, The Sydney Morning Herald, 22 July 2016, https://www.smh.com.au/business/retail/acccs-rod-sims-says-woolworths-has-more-problems-with-suppliers-than-coles-20160722-gqbqp3.html (accessed 1 December, 2016). Krugman, P. and G. Wells, Microeconomics, London, Worth Publishers, 2013 Lawson, K.,Uber arrival on Friday ends taxi monopoly, but how many drivers will be on the road?,The Sydney Morning Herald, 29 October 2015, https://www.smh.com.au/act-news/uber-arrival-on-friday-ends-taxi-monopoly-but-how-many-drivers-will-be-on-the-road-20151029-gklwph.html (accessed 1 December, 2016). Mankiw, G., Microeconomics, London, Worth Publishers, 2014 Nicholson, W. and C. Snyder, Fundamentals of Microeconomics, New York, Cengage Learning, 2011 Pindyck, R. and D. Rubinfeld, Microeconomics, London, Prentice-Hall Publications, 2011 Thomson, J., Tabcorp and Tatts Group fail to agree on merger, The Sydney Morning Herald, 16 November, 2015, https://www.smh.com.au/business/tabcorp-and-tatts-group-fail-to-agree-on-merger-20151115-gkzo5c.html (accessed 1 December, 2016).