Concept of Monopoly companies in Australia
Table of Content
Concept of Monopoly companies in Australia:
A monopoly could be understood as a scenario when a singular company and its respective product range significantly dominate either a particular sector or entire industry. It could be considered as a practical and extreme result of extended free-market capitalism (Casson, 2016). The term monopoly is most commonly used for definition of entity that has near-total or total control over entire market segment. In monopolistic situation, a singular group, entity or company eventually becomes significantly large that it gains complete or near-complete market including goods, commodities, supplies, infrastructure, and assets associated with a particular service or product.
Monopolies tend to have an edge and unfair advantage over different rival organization mainly because of the fact that they emerge as the sole provider of specific product and service. However, in a monopolistic environment, an organization does not face any significant competition because it is the sole producer and seller of the products with no close substitutes. In a monopolistic marketspace, a wide range of factors such as ownership of resources, government license, patient and copyright, and high starting cost tends to make a singular entity as the single seller of products and goods. Such factors greatly restrict other potential organizations from gaining entry into the market segment. Monopolistic organizations also possess significant information that is not generally known to other organizations which gives them a significant edge (Liu & Yang, 2007).
Competitive and monopolistic market tends to mark the extreme in terms of different attributes of market structure. There are a number of similarities between two types of markets such as – similar cost functions, minimization of costs and maximization of profits, similarity between shutdown decisions, etc. To better understand monopolistic market structure of Australia, the most potential distinction could be evaluated in the form of demand curve. Different monopolistic organizations in Australia have a downward sloping demand curve in contrast of perfectly elastic curve of a competitive market segment.
Firms in such market have limited competition and can mark up their respective prices as per their preference. Primary responsibility for managing such aspects is possessed by Australian Competition and Consumer Commission. However, the firms have grown significantly large in size that it has lower costs per potential customer. Every additional customer would make the overall cost to fall cheaper.
The present report will shed light on an important term used in economy of every country i.e. monopoly which means the control of a single firm over the industry or market. To understand it, market of Australia has analyzed and it is observed that two sectors supermarkets and banking in Australia possess monopoly. Woolworths and Coles represented 80 per cent of the market in supermarkets industry whereas in banking sector ANZ, NAB and Commonwealth are the major banks which possess monopoly. The other feature of monopoly presented that most of these companies are in the race to maximize their share and profits. These companies are the market price makers in their respective sector. The major reason of this monopoly is that there is high entry barrier in these sectors and it is hard to achieve economies of scale. The detailed discussion will be provided on various elements that leads to monopoly of these companies in Australian market.
Monopolistic Market Structure in Australia :
In a monopolistic environment, there are a number of potential sources that allows various organizations in generating significant control over entire marketspace. As per monopolistic scenario of Australia, a significant monopoly exists in supermarket industry and banking sector. Woolworths, Coles, and Wesfarmers have obtained significant fraction of entire Australian supermarket sector. Such firms have grown considerably large in context of their respective operations and overall network that they control a significant market space. It has been analyzed that over 80% of the market segment is captured by dominant supermarkets – Woolworths, Coles, and Wesfarmers (Kollmorgen, 2016). The remaining fraction comprises of all other supermarket industry that operates in Australian domain.
The below-given graph provides an illustration of overall competition in different supermarkets around the world. With the help of this graph, four-different supermarkets brands – Coles, Woolworths, IGA and Aldi – have over 90 percent of the entire marketspace. From the below-given graph, it has been analyzed that major supermarkets of Australia have a significant control over a considerable fraction of the market segment.
Further, in banking sector, four major organizations – NAB, ANZ, Commonwealth, and Westpac – have a significant control over the entire banking and finance industry. Such banks exert monopoly over other organization primarily due to vastness of operations, high capitalization, significant amount of assets, and strong operating network amongst Australia and other countries. Apart from Australia, some of the banks also have operations in other countries which provides them with an edge over another firms in the industry (ACARROLL, 2012). With passage of time, these banks have grown humongous in size and engages millions of customer on a potentially large scale. The below-given graph provides percentage share of various banks in the banking and financial industry over a period of time.
Multiple sources have been identified that allows such organizations to obtain monopoly over other. It is due to such sources that these organizations have been able to grow humongous in size and capture a great fraction of respective industries. Some of the most significant sources of power include –
- Legal Barriers
- Capital Requirements
- No substitute good
- Network Externalities
- Deliberate Actions
- Technological Superiorit
- Economies of Scale
- Control over resource
Characteristics of Monopolies in Australia
There are multiple characteristics which are possessed by different organizations that operate in a monopolistic market structure. Some of the most recognizable characteristics of different monopolies in Australia are –
- In context of Australian supermarkets, monopolies aim to maximize overall level of profits through various prominent critical actions. As there is significant lack of overall competition, a particular firm can charge maximized price in comparison of competitive market. This aids in maximization of overall revenue which is one of the most prominent characteristics of Australia monopolistic organizations.
- Different monopolistic supermarkets such as Coles and Woolworths are a price maker mainly because of the fact that it decides price of various goods and products that are being sold. The overall price is mainly determined by evaluating the overall demand. The prices are set so as the firm can maximize overall revenue to maximum extent (NICKOLAS, 2019).
- Further, in a banking monopolistic environment, there are significantly high barriers to entry. Competitors are not capable of entering the market segment and monopolistic organizations can optimally prevent competition from penetrating and development foothold in the industry. Due to significantly high barriers, new entrants are not able to obtain an entry into the market and monopolistic organizations continue to dominate the marketspace.
- An Australia monopoly often tends to produce various goods and products at lower cost in comparison to other smaller companies. Australian monopolies tend to possess the capability of buying huge quantities of inventory and use them for volumetric discount. As an overall result, monopolistic organization lower their prices so much that various small-scale companies fail to survive. In addition, monopolies can greatly engage in price wars mainly due to their scale of overall manufacturing and distribution networks which allows them to mold prices of various products in a significant manner (NICKOLAS, 2019).
List of monopoly companies in Australia:
As discussed above, two different industrial domains i.e. banking sector and supermarket sector have significant degree of monopoly in their respective domains. Some of the organizations have grown considerably large in economies of scale and scope that they tend of possess significant power and control over other minor organizations. However, unlike traditional monopolies, there are a number of organizations in Australian marketspace that have emerged as monopolistic in their respective domains. This could be understood as a scenario of multi-monopoly where a number of organization together control their respective market segment.
As discussed above, monopolies exist in two different segments i.e. banking and supermarket sectors. In supermarket domain, Woolworths, Coles, and Wesfarmers have emerged as significant leaders in respective domain as they control a considerable fraction of entire marketspace.
There have been a number of researches and surveys that have defines that these three firms control over 80% of the market segment. Rest, of the fraction combines of a large number of other firms that operate in the similar segment such as IGA, The Distributors, ALDI, etc. The entire market concentration of Australian grocery stores is stuffed amongst three major organizations – Woolworths, Coles, and Wesfarmers. Frequently, all of these organizations are locked in price wars but due to significantly high market share, none of them deal a considerable damage. A detailed description regarding these organizations have been given below.
- Woolworths is a significant leader brand in supermarket and retail store industry as it has capture 1/3rd of the entire marketspace. Founded in 1924, the organization has come a long way through and formulates a duopoly with Coles supermarket by controlling almost 80% of the Australian marketspace. In entire country, the organization has over 1000+ stores that serves a potentially large number of customers on a regular basis. In terms of employee base, the organization has employed more than 100,000 employees amongst various stores. Considering the large scale of organization, it has successfully initiated 981 supermarket stores along with 43 convenience stores in Australia. Above all, as of 2019, it generated a massive revenue of AUD 39.568 Billion. Such attributes can optimally define overall extent of Woolworths to which it has emerged as a dominating organization in supermarket industry (SBS News, 2013).
- Coles Supermarket is a 105 years old supermarket chain in Australia that has penetrated into multiple market segments due to high quality of products and services. As of 2019, Coles has 807 supermarkets across Australia and has a massive employee base of 112,298. It has obtained a duopoly in Australian marketspace in coordination with Woolworths Supermarkets. Due to vastness of various prominent services, the organization generated revenue of ~AUD 39 Billion in 2018. The organization also sells a wide range also sells a wide range of products under private label which have gained significant reputation mainly due to high quality (SBS News, 2013).
- Wesfarmers Limited also mainly operates in retail sector but has a number of other prominent domains in chemical, fertilizers, coal mining, industrial, and safety products. Apart from Australia, the organization also serves a number of other countries such as Ireland, United Kingdom, New Zealand, and India. The organization employs more than ~200,00 employees across multiple locations in Australia. Due to penetration into a number of prominent sectors, Wesfarmers Limited has created monopoly primarily due to extensive share in entire marketspace.
Banking Sector Monopoly
In Australian banking sector, four major organizations – NAB, Westpac, ANZ, and Commonwealth have considerably deep rooted into the entire sector. With passage of time, overall competition in banking domain has been continuously incrementing but these four firms have gained significant control over the marketspace. Due to significant coordination amongst these four banks, they generate millions of dollar in terms of mutual funds and assets annually. Each of the firm has a prominent aim of maximizing profits levels as in monopolistic situation. For setting up an organization in the banking industry, a considerable amount of capital is required that makes it hard for new entrants to gain entry. In the current situation, customers tend to invest only in one of the four banks which predominantly holds lion’s share in marketspace. It could be understood that all four banks have obtained significant control of entire sector due to which they have emerged as monopolistic organizations. A concise description regarding each bank has been given below –
- National Australia Bank (NAB) has emerged as a significant brand and obtained a reputable position amongst four prominent financial institutions in Australian domain. In terms of capitalization, the bank has been ranked 21st and in terms of total assets, it has been ranked 50th in the entire world. With a humongous customer base of 12.7 million, the organization has 1,590 branches across Australia. Such statistics define the vastness of NAB in Australian banking sector (Avkiran, 2018).
- Westpac is a prominent Australian financial provider and bank which is headquartered in Sydney. The organization is over 200 years old and serves in worldwide domain apart from Australia. It has a total of 1,205 branches across Australian region and employs over 35000 employees amongst different branches. It has been recognized as most sustainable bank as it has been able to serve over 14 million customers.
- Australian and New Zealand (ANZ) Bank is a multinational organization operating in banking and financial industry. In Australia domain, the bank has obtained second position in terms of asset and in terms of capitalization, it has emerged as third largest bank. Amongst four other banks, it has also obtained a considerable monopolistic position in the industry.
- Commonwealth Bank is a multinational organization that operates across New Zealand and Australia along with other prominent countries. This bank is mainly dominant because of a wide category of services such as funds management, business banking, institutional banking, insurance, investment, etc. The organization has over 50,000 employees and a strong network with more than 1,100 branches in Australia. Due to vastness of operations and network, the organization has emerged as the largest bank in entire Southern Hemisphere (Avkiran, 2018).
It could be understood that above-mentioned organization have a considerably large network in the entire Australian marketspace. Such organizations have been operating in the country for an extended period of time and have penetrated deep into market segment. Due to such aspects, these organizations tend to control a significant fraction of entire market by defining various policies, procedures, and standards which are followed by other minor organizations. Such parameters define that these organizations have emerged as monopolistic in nature as they control working of entire market by defining various standards. A great degree of control over the market segment has allowed these organizations to be monopolistic in nature.
- ACARROLL. (2012). New study claims nation's big banks 'acting as a monopoly'. Retrieved 28 December 2019, from https://www.thechronicle.com.au/news/study-claims-nations-big-banks-acting-as-monopoly/1654735/
- Avkiran, N. (2018). Systemic Risk and Productivity of the Major Australian Banks. Theoretical Economics Letters, 08(11), 2157-2168. doi: 10.4236/tel.2018.811141
- Casson, M. (2016). Introduction to Monopoly. The Theory Of International Business, 41-52. doi: 10.1007/978-3-319-32297-1_3
- Kollmorgen, A. (2016). Market monopolies in Australia - CHOICE. Retrieved 28 December 2019, from https://www.choice.com.au/shopping/everyday-shopping/supermarkets/articles/market-concentration
- Liu, W., & Yang, X. (2007). EFFECTS OF POLITICAL MONOPOLY ON ECONOMIC DEVELOPMENT. Pacific Economic Review, 12(1), 69-78. doi: 10.1111/j.1468-0106.2007.00341.x
- NICKOLAS, S. (2019). What Are the Characteristics of a Monopolistic Market?. Retrieved 28 December 2019, from https://www.investopedia.com/ask/answers/040915/what-are-characteristics-monopolistic-market.asp
- SBS News. (2013). Coles, Woolies warned on monopoly. Retrieved 28 December 2019, from https://www.sbs.com.au/news/coles-woolies-warned-on-monopoly