OpEd - A Few Big Firms - The Monthly

A Few Big Firms*

Andrew Leigh and Adam Triggs

The Monthly, 17 May 2017

A few years ago, a pair of young economists noticed something odd in the Australian petrol market. Melbourne University’s David Byrne and Sydney University’s Nicolas de Roos saw that petrol retailers were suddenly coordinating their prices much more precisely than ever before. Relative to the price of crude oil, motorists were paying more at the bowser.

For decades, motorists have known about petrol price cycles. Somewhere in the middle of the week, prices suddenly spike – often by as much as 15 to 20 cents per litre. Over the next six days, they fall by a few cents each day. The next week, the cycle begins again.

If it’s regular enough, bargain-hunting motorists can make significant savings out of a weekly price cycle. Frugal parents might advise their adult children not to buy petrol on weekends, but to wait for ‘cheap Tuesday’, and fill the tank just before the price rise. Get it right, and you’ll save. But wait a moment too late, and you might find yourself paying 20 cents a litre more.

From a retailer’s perspective, weekly or monthly petrol price cycles are only profitable if their competitors follow a similar pattern. Although some drivers have fuel cards, most people don’t care much whether they get their petrol from Shell or BP. So if some retailers were cheapest on weekends, and others were cheapest on weekdays, then motorists would just choose the lowest price outlet.

What Byrne and de Roos noticed was that, starting in around 2010, daily prices among petrol retailers in Perth were moving in lockstep. Before that, if you tracked the prices charged at two service stations, they followed a roughly similar pattern over the week. But there was always an incentive to break ranks. If two petrol stations were side-by-side, dropping prices by even just one cent a litre could lead to a significant rise in sales. So while coordination could raise total profits, the daily temptation was invariably to undercut the guy next door.

This basic principle – that competition benefits consumers – is why Australia bans companies from colluding. The concern goes back to 1776, when Adam Smith, the godfather of economics, warned that ‘People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.’[1] In a near-textbook example of what Smith was warning against, the late-1990s saw a group of Ballarat petrol retailers collude to raise their prices. Through phone calls, meetings and secret code words, they managed to gouge consumers by up to 12 cents a litre until they were caught and fined a total of $23 million.[2]

But Byrne and de Roos didn’t think what they were observing was a result of secret meetings, fake moustaches and disposable mobile phones. This wasn’t going on in a regional town – it was across the entire Perth metropolitan area. Armed with daily prices from every petrol station in Perth – more than 1.7 million fuel prices – they began their statistical detective work. How was it that petrol stations were coordinating their prices?

The researchers found that the dominant firm, BP, performed the role of the price leader. BP’s prices acted as a focal point for the broader market to converge on. Through a long process of trial and error, by 2010 all petrol stations had adopted the same pricing strategy where every Thursday prices went up by 15-20 cents per litre. Then, for the next six days, the price fell by 2 cents each day. Like clockwork, the cycle repeats itself week after week. The only change was in 2015 when all petrol stations switched from Thursday price jumps to Tuesday price jumps.

What they found should cause concern among consumers, policymakers and regulators alike. For years, we’ve hoped that ‘big data’ – the ability to access and analyse huge datasets – would put more power in the hands of consumers. When they first emerged, there was great hope for the pro-consumer benefits of smartphone apps like PetrolSpy, FuelMap and MotorMouth that show where to buy the cheapest petrol. Alas, only a small fraction of motorists use them. Instead, big data has tilted the playing field towards the retailer.

Byrne and de Roos called it ‘tacit collusion’. The result in Perth is the same as in Ballarat: coordinated prices, less competition and higher margins for retailers. From 2003 to 2016, they estimate that petrol stations virtually eliminated price wars and tripled their margins. The cost to consumers was around 10 cents per litre – meaning that drivers paid an extra $7 to fill up a Holden Commodore. But because the process involved number crunching rather than clandestine deals, it didn’t break the law.[3]

Goliath 1, David 0

What economists want for the economy is what every sports fan wants when they show up to the game: healthy competition. And yet too many industries in Australia are dominated by cosy oligopolies rather than healthy rivalry. In petrol retailing, our largest four fuel retailers have more than 70 percent of the market. In the United States, by contrast, the biggest four petrol sellers have a combined market share below 20 percent. 

The problem isn’t just at the pump. One standard measure of market concentration judges an industry to be concentrated if the top four players control more than one-third of the market.[4] In 2016, we calculated this measure for 481 Australian industries.[5] We found that more than half of Australia’s industries are concentrated.

Some sectors are particularly tightly controlled. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer, the biggest four firms comprise more than 80 percent of the market. In fact, it’s hard to come up with examples of Australian industries that are not dominated by a few behemoths.

As we teach economics students, monopolists deliver worse outcomes because consumers get less supply and higher prices. Even when the market is controlled by a few major players, customers still get a raw deal. Competition is bad for productivity too. Firms which are shielded from competition are less likely to innovate and grow than those that are challenged by other companies. For example, British and German studies, looking at tens of thousands of companies, have found that firms in competitive sectors experienced productivity growth rates nearly 5 per cent higher.[6]

The same pattern holds up across countries. Among developing countries, having competition laws and an enforcement agency boosts economic growth by up to 3 per cent.[7] Indeed, there are potentially massive productivity gains to be had for China and India from introducing stronger competition policies in key markets.[8] Among developed nations, about one-fifth of productivity growth has been attributed to better competition policy.[9] In Australia, the Productivity Commission found that National Competition Policy reforms pursued from 1997 to 2006 boosted the income of households by around $7,000.[10]

Among progressives, competition can sometimes be a dirty word – connoting a race to the bottom. But competition is fundamentally egalitarian. Indeed, the evidence suggests that it isn’t just consumers who do well in competitive markets. Competition creates jobs, lifts wages and improves conditions. In Australia, industries which are more concentrated tend to have a lower wage share than those which have more competitors.[11] In France, increased competition through reformed planning and zoning regulations boosted employment the retail sector.[12] Pro-competition product market regulations have similarly been shown to create jobs.[13] Competition for workers has been shown to be critical to raising wages and improving conditions.[14]

Given the benefits of competition for workers, we shouldn’t be surprised to learn that competition reduces inequality. Disadvantaged households are hit hardest by powerful monopolists, with welfare losses up to 150 per cent higher for the poor than the rich.[15] The World Bank has confirmed this finding: across a plethora of countries, the poorest suffer most from a lack of competition.[16] The reserve is also true: the spoils of market concentration go to the most affluent. One study estimated that one-quarter of Australia’s super-rich made their money by dominating an uncompetitive industry.[17]

From time to time, special interest groups will claim that Australia has to let companies dominate the local market, so they can get big enough to take on the world – the so-called ‘national champions’ argument. But just as on the athletics field, it turns out that wrapping your best in cotton wool isn’t the way to Olympic gold. Studies consistently show that uncompetitive markets tend to be less innovative and have fewer startups.[18] As innovation experts Mariko Sakakibara and Michael Porter sum it up: ‘local competition – not monopoly, collusion, or a sheltered home market – pressures dynamic improvement that leads to international competitiveness’.[19] If you can’t win fairly at home, you don’t have much hope overseas.

Competition isn’t just about efficiency, it’s about equity. Competition ensures wealth is not concentrated at the big end of town. It reduces the cost of living for disadvantaged Australians. It helps workers through higher wages, improved conditions and more jobs. And it means more choice and better quality and safer products for consumers through increased innovation.

It’s Not a Competition (But I’m Winning)

Complaints about a lack of competition in Australia are nothing new. You don’t have to go to many barbecues to hear friends voicing concerns about only being able to choose between Coles or Woolworths, Myer or David Jones, Caltex or BP, the Commonwealth Bank or NAB, Qantas or Virgin.

But it doesn’t have to be this way. Indeed, Australia stands out internationally in having particularly concentrated markets. The World Economic Forum’s Global Competitiveness Report found that Australia ranks poorly on ‘the extent of market dominance’, ranking us a lousy 53rd in the world.[20] When we compared our findings on market concentration with those in the United States, we found that Australian industries were considerably more concentrated.[21]

Concentration is getting worse, too. Since 1990 the number of mergers and acquisitions in Australia has more than quadrupled from 346 (with a combined value of $28 billion) to 1,595 in 2016 (with a value of $140 billion). Merger activity peaked in Australia in 2007. In that year, Australia saw 3,057 mergers, valued at $460 billion.[22] This has led to a substantial increase in market concentration in supermarkets, banking, airlines, meat processing, bottled drinks, telecommunications and a range of other important industries.[23]

While the megacorps are amalgamating, fewer start-ups are starting. The rate at which new businesses are being created in Australia has slowed over time. Back in the 2000s we would typically see a 17 per cent increase in the number of new businesses each year. Since 2010 this has fallen to 13 per cent.[24] For all the talk of incubators, accelerators and innovation, our nation isn’t starting as many businesses as it used to.

So market concentration is high in Australia, it is high by international standards and it is increasing. But is it necessarily a problem?

Defenders of the status quo sometimes point out that increased concentration doesn’t necessarily mean reduced competition. This is true. But despite its imperfections, market concentration is widely considered to be a strong indicator of the level of competition. The fact is that competition problems rarely emerge in markets that are not concentrated. For example, merger guidelines from the Australian Competition and Consumer Commission say that the competition watchdog is unlikely to identify concerns in a market in which concentration is low.[25] Its overseas counterparts take a similar approach. Being big isn’t necessarily bad, but it does arouse reasonable suspicion. After all, bullies aren’t usually the scrawniest kids in the playground.  

Studies have also linked a variety of competition problems directly to increased market concentration. One British study found that a 25 per cent increase in market concentration leads to a one per cent fall in productivity.[26] When a market is more concentrated, it’s also easier to run a cartel.[27] When Visy and Amcor conspired to raise prices for cardboard boxes, their starting point was that they jointly controlled 92 percent of the market. OPEC, the world’s biggest cartel, owes its success in large part to the fact that Saudi Arabia has about one-fifth of the world’s proven oil reserves.

Or take banking, where the big four have increased their share of market assets from 65 per cent to 77 per cent over the past decade.[28] In a competitive environment, we would expect to see profits squeezed down by intense competition. But over the past decade, Australia’s major banks have enjoyed an annual return on equity around 15 per cent, making them among the most profitable financial institutions in the world. Over the same period, banks in Europe, Japan and the United States have seen returns on equity below 10 per cent.[29] 

Australia’s lack of banking competition is reflected in the fact that the vast majority of variable rate mortgages can be changed at the whim of the lender. Most Australian banks do not offer ‘tracker mortgages’, in which the interest rate is pegged to an official benchmark. An exception is Auswide Bank, whose tracker mortgage rate is the Reserve Bank’s cash rate plus 2.49 per cent. Tracker mortgages provide customers more certainty, and are common in some other nations. Yet despite strong encouragement from the Australian Securities and Investments Commission, our major banks do not offer tracker mortgages.

Winning Ugly

Like emperors, kings and czars, monopolists can be tempted to engage in shenanigans that an ordinary competitor wouldn’t dream about. What do the Storm Financial, Timbercorp, Comminsure and bank bill swap rate scandals have in common? They all involved one of the big four banks in some way. As the Reserve Bank recently warned, ‘banks that allow or encourage a culture of excessive risk-taking can pose significant harm to financial stability’.[30]

The same is true of tacit collusion. In their study of the Perth petrol market, David Byrne and Nicolas de Roos argue that tacit conclusion was made much easier by the fact that there was a clearly dominant player.[31] Where BP went, the rest followed.

In other markets, large players have behaved badly by imposing unreasonable payment terms on their smaller suppliers. In 2016, Rio Tinto told many of its suppliers that, with no compensation, it would pay its bills after 90 days instead of 45 days (in 2014 it was 30 days). While Rio Tinto backed down following intense public pressure, the attempt followed BHP’s decision to pay its suppliers after 60 days instead of 30 days. In recent years, Procter & Gamble, Mars, Kellogg, Heinz and Woolworths are among the major firms which have told their suppliers that they will have to wait longer before getting paid. In April 2016, Murray Goulburn retrospectively cut the price it paid to farmers, then asked them to pay back the difference – conduct that the Australian Competition and Consumer Commission believes was a breach of the consumer law.

If you think that longer payment terms have nothing to do with market power, try going to the supermarket and telling the checkout operator that you’ll pay for your groceries after 60 days. The reason firms can get away with longer payment terms and you can’t is straightforward: they have market power. On average, large companies are almost 20 per cent slower in paying their bills than small companies.[32]

The industries which are the laziest in paying their bills are telecommunications, mining, utilities and the industry for finance, insurance and real estate. These industries also tend to be the ones that are highly concentrated. Australian companies are also tardier than those in New Zealand, where bills are paid 22 per cent faster.

Even Australia’s beloved beer industry is thirsty for a bit more competition. Next time a bearded hipster starts extolling the virtues of craft brewing while sipping on a White Rabbit, Little Creatures, Kosciusko, Knappstein, Furphy or Matilda Bay, remind him that he’s drinking one of the many faux craft beers on offer. Owned by a big brewer, the only thing that’s crafty about these beers is the marketing ploy.

Australian beer is one of our most concentrated industries. The four biggest firms control a whopping 90 per cent of the market. Mega mergers in the pipeline will likely make things even worse. Over the past decade, the cost of a beer has gone up 42 percent, meaning we’re paying as much for a middy today as a schooner ten years ago. A range of factors have contributed to beer prices outpacing inflation. But a lack of competition is doubtless one reason that shouting a round costs more than ever before.

Companies who dominate employment markets can exploit workers too. Take the example of Michael Devine, a former computer scientist at Adobe in Seattle, Washington. After working for Adobe for four years, Michael was curious why he never seemed to receive job offers from any of the other tech companies in Silicon Valley.

It took Michael another four years to find out why. It turned out that Adobe had entered into a secret agreement with five other tech giants – Apple, Google, Intel, Intuit and Pixar – not to hire each other’s workers. In an angry phone call, Apple’s Steve Jobs had warned Google’s Sergey Brin: ‘If you hire a single one of these people, that means war’.[33]

Unfortunately, Michael’s story is not uniquely American.  Australia’s competition laws do little to limit what are called ‘non-compete clauses’ in employment contracts. These clauses prevent employees from working for a competitor, starting a competing firm or poaching their customers.[34]

Large firms are using non-compete clauses more frequently than in the past. While non-compete clauses typically have time limits, an Australian study found that they still have an ‘intimidating effect, which means that employees observe restraints, even if they overreach [the law], without challenging them in court’. The researchers concluded that the use of such clauses is not only growing but is ‘daunting for many employees to navigate’, having a chilling effect on employees moving between businesses.[35]

In 2016, the US Department of Justice concluded that collusion between human resources departments means less competition for workers which means lower wages, poorer conditions and reduced mobility.[36] Non-compete clauses make it harder for employees to switch to a better job and stifle start-ups. Since many new companies are created by employees who leave to start a competing company, non-compete clauses reduce innovation. Using three decades of patent data, a US study found a ‘brain drain’ of inventors from states that enforce non-compete clauses to states that do not.[37]

For farmers, the squeeze can come on both ends. While farming itself is a relatively competitive industry, the same cannot be said for the firms that farmers buy from and sell to. Farmers have limited choices on who they can buy their inputs from, with pesticides, fertilisers and seeds all suffering from significant market concentration.

Farmers also have too few choices on who to sell to, with monopsony buyers and large supermarkets dominating the market. An investigation last year by the competition watchdog found that cattle auctions are particularly bad. Bid-rigging, physical intimidation and manipulation of sale weights have all reduced the price paid to farmers. In other sectors, buyers demand that suppliers open their books so as to pay as little as possible.

Would I Lie to You?

Last year, veteran plumber Ken Johnston reported removing a 12 metre block of wet wipes that a Sydney family had flushed down their toilet. They were, he said ‘almost like kevlar, and they don’t break apart’.[38] Mr Johnston’s blockage was among more than 500 tonnes of so-called flushable wipes that Sydney Water says are removed each year, at a cost to the taxpayer of more than $15 million.

At the heart of the problem is that flushable wipes are about as flushable as your bathmat. Yet because the market is dominated by a few retailers, consumers have been easily misled, with a quarter of households admitting to dunny-dropping wet wipes. In 2016, the Australian Competition and Consumer Commission commenced proceedings against two of the leading retailers of ‘flushable wipes’, Kimberly-Clark and Pental Limited.

Telling a porky to sell a product is certainly nothing new. But when a major player misleads its customers, they find it harder to punish the deception by taking their business elsewhere.

For four years, starting in 2011, Nurofen, a bigshot in the painkiller business, began selling series of products that aimed to ‘target’ specific kinds of pain. But while they had different names – Nurofen Back Pain, Nurofen Period Pain, Nurofen Migraine Pain and Nurofen Tension Headache – they all had the same active ingredient, 342 milligrams of ibuprofen lysine.

No doubt, customers trusted Nurofen’s claims more than they would have done with an unknown firm. Similarly, when Dulux said that its outdoor paint could reduce the temperature of a house by up to 10 degrees, many took the claims of the large paint manufacturer at face value. And when Uncle Toby’s asserted that its oats were a ‘natural source of protein’, few would have paused to look at the fine print ‘when prepared with skim milk’. In the end, all these big firms were fined for misleading consumers – but the reason they could profit in the meantime was that they had considerable market share.

Over the past few years, the list of companies that have been reprimanded by the competition watchdog or the Federal Court reads like the ‘who’s who’ of the top end of town, including Jetstar, Virgin, Arnott’s, Optus, Harvey Norman franchisees, Kogan and Unilever.

False claims aren’t just a casual annoyance, they weaken competition and damage our economy. By our calculations, the companies that were identified by the ACCC to have misled and deceived consumers in 2016 operate in industries with over $200 billion of revenues annually. This is a sizeable chunk of the Australian economy.

Allowing companies to get away with misleading and deceiving consumers damages the competitive dynamic of our economy. It means less innovation, higher prices and less production, as well as more dangerous products. Trust is fundamental for markets to operate effectively. Eroding that trust can have substantial economic and social consequences. 

Unfortunately, the problem appears to be on the rise. Complaints to the competition watchdog of misleading and deceptive conduct are up one-third over the last three years. Last year, losses to scammers averaged nearly than ten dollars for every person in Australia. Customers with less education and poorer social networks are particularly vulnerable to rip-offs.

It’s not just budgets which take a hit, either. In 2016 the Federal Court found Woolworths to be liable for selling a faulty drain cleaner which burned multiple customers, including a baby which required surgery, and deep fryers which had handles that could easily fall off. Woolworths reportedly refrained to withdraw these items from sale even after it learned of the injuries.

Competition and consumer protection are inherently linked. When companies can get away with lying, they stop competing. Why compete on price if you can get away with hidden shipping charges? Why work to make a nourishing product if you can falsely label it as being ‘fresh and healthy’? Why bother creating innovative products if you can make any unsubstantiated claims you like?

Back in the Game

To summarise, more than half of Australia’s markets are concentrated, some of our biggest industries are very concentrated and the problem is getting worse because fewer new businesses are being created and more existing businesses are merging together. We are seeing a rise in firms using their market power for anti-competitive purposes to the detriment of small businesses, workers and consumers. And we are seeing a rise in anti-consumer conduct which is reducing the incentive of firms to compete on the price, quality and effectiveness of their goods and services.

So what can be done about Australia’s growing competition problem?

One answer is to make it easier for more competitors to enter the market. It’s perfectly reasonable for firms to prevent ex-employees stealing confidential information. But ‘non-compete clauses’ are a sledgehammer to crack a nut. Studies show that making these clauses unenforceable – as California has done – leads to an upsurge in innovation.[39]

New companies can also be nurtured through accelerators and incubators, and by removing unnecessary impediments to angel investment. When we make it easier for entrepreneurs to get a visa to Australia, we put welcome pressure on the incumbent firms. Whenever policymakers are thinking about planning and zoning laws, they should ensure that the rules aren’t unwittingly helping the establishment over the up-and-comers. In the banking sector, credit unions and building societies will be able to compete more effectively if they have fairer access to capital.

In transport, accommodation and logistics, the biggest competitive challenge will come from new online platforms, using business models that would have been unthinkable a generation ago. Uber owns no cars. AirBNB owns no hotels. Netflix has no stores. And yet they represent a major threat to the taxi, accommodation and video rental industries.

In the United States, Amazon accounts for about half of online sales, and 5 percent of all retail spending.[40] Amazon’s impending arrival in Australia is an existential threat to shopping centres, supermarkets and department stores. Chat with the large banks, and you notice how worried they are about Apple’s potential to expand into the finance sector.

The risk here is that technology might simply replace an old-fashioned oligopoly with a Silicon Valley monopoly. While anyone can start a firm in their garage, the story of platforms such as Facebook and Google is one of rapid market dominance. Indeed, some people now think that the best hope for more competition in sectors like internet search and social media will come when these players start intruding into each other’s domains.

Australia shouldn’t mindlessly block new online competitors, but neither should we be starry-eyed about them. Being part of the ‘sharing economy’ doesn’t absolve you from paying company tax, complying with minimum wage laws and ensuring people with disabilities get a fair deal. We should also recognise those local firms that are creating opportunities that never existed before, like Newcastle-based Camplify (which lets you hire a caravan) and Melbourne-based ParkHound (which lets you rent a private parking place).

Ensuring we get the most out of technical disruption will require stronger skills and better infrastructure. Charles Darwin famously said it’s not the strongest of the species that survive, it is the one that adapts successful to change. Workers are more likely to find new jobs if they have broad-based skills and a love of learning. Start-ups will be more successful with access to high-speed broadband .

Just as police forces must evolve to fight new types of crime, Australia’s competition watchdog – the Australian Competition and Consumer Commission – needs the right powers and resources to tackle monopolies. Its British counterpart has a market studies function, which allows the regulator to investigate concentrated sectors and propose solutions before the problems emerge into public view. For example, a market studies power would have allowed Australia’s competition watchdog to initiate its own inquiry into the energy sector, without waiting for a specific reference from the federal government. Ian Harper’s 2015 competition review recommended a strong market studies power and the Australian Competition and Consumer Commission has repeatedly requested one.

When it comes to deterring bad behaviour, our laws are only as powerful as the penalties courts can impose. When Nurofen was taken to court for their ‘specific pain’ range, they ended up being fined just $6 million – a tiny fraction of total sales. Similarly, the fines imposed on Woolworths for selling faulty drain cleaner and dodgy deep fryers amounted to just 0.006 per cent of its annual sales, despite the fact that these products caused serious burns and injuries.

Michelle Gordon, who was also recently appointed to the High Court, has warned that these penalties do little to deter illegal conduct. As Australian Competition and Consumer Commission chair Rod Sims puts it, the risk is that companies see these penalties as a mere ‘cost of doing business’. Raising the maximum penalty for consumer rip-offs, and linking the penalty for anti-competitive conduct to total sales, would clearly signal that corporate wrongdoing doesn’t pay. It would also bring Australian penalties into line with jurisdictions such as the European Union.

Some of the revenue from these higher fines could be directed back into the competition watchdog’s litigation budget, which would give it more firepower to go after companies that flout the law. And given that anti-competitive and anti-consumer conduct especially harms the most vulnerable in the community, the competition watchdog ought to explicitly prioritise investigations into wrongdoing that targets disadvantaged Australians. When rip-off merchants go door-to-door selling unnecessary funeral insurance in Indigenous communities, the law should come down on them like a ton of bricks.

In a competitive market, our big banks shouldn’t be among the most profitable in the world. Farmers shouldn’t find themselves having only a couple of choices when they buy their seeds and fertilizer; and then having to sell to a monopoly agribusiness. And there shouldn’t be a ‘cheap day’ to buy petrol. Getting competition right isn’t just about creating a stronger economy – it’s also fundamental to forging a fairer society.

 

Andrew Leigh is the Shadow Assistant Treasurer and the Shadow Minister for Competition and Productivity. Adam Triggs is a researcher at the Crawford School of Public Policy at the Australian National University.



* Thanks to John Asker, Caron Beaton-Wells, David Byrne, Nicolas de Roos and Ray Steinwall for valuable comments on earlier drafts. All errors are ours.

[1] Smith A. (1776). An Inquiry into the Nature and Causes of the Wealth of Nations. London: Methuen & Co., Ltd,   http://www.econlib.org/library/Smith/smWN.html 

[2] Faye Smith and Ballarat Courier (2005). Cartel hit with $23m in fines for price fixing. The Wimmera Mail-Times. 22 March. http://www.mailtimes.com.au/story/956083/cartel-hit-with-23m-in-fines-for-price-fixing/

[3] Tacit collusion has been thought to escape Australia’s competition laws. To establish collusion under section 45 of the Competition and Consumer Act 2010, the prosecution must show an ‘arrangement or understanding’ between competitors in which each party has aroused an expectation in the other that they will act in a particular way. The analysis of Byrne and de Roos suggests this would be difficult to prove, given there is just a leader setting a price that it expects others will follow.

[5] Andrew Leigh and Adam Triggs (2016). Markets, monopolies and moguls: The Relationship between Inequality and Competition. The Australian Economic Review, Volume 49, Issue 4, December 2016, pp. 389–412. http://onlinelibrary.wiley.com/doi/10.1111/1467-8462.12185/abstract

[6] The original productivity estimate was a gain of 4.6 percent: see Stephen Nickell (1996). Competition and Corporate Performance. Journal of Political Economy, Volume 104, Issue 4, pp. 724-726. https://ideas.repec.org/a/ucp/jpolec/v104y1996i4p724-46.html. For more recent analyses of the same question, see also Richard Disney, Jonathan Haskel and Ylva Heden (2003). Restructuring and productivity growth in UK manufacturing. The Economic Journal, Volume 113, Issue 489 (July 2003), pp. 666–694. http://onlinelibrary.wiley.com/doi/10.1111/1468-0297.t01-1-00145/abstract ; Silke Januszewski, Jens Koke and Joachim Winter (2002). Product market competition, corporate governance and firm performance: An empirical analysis for Germany. Munich Reprints in Economics, Number 19548. https://ideas.repec.org/p/lmu/muenar/19548.html

[7] Stefan Voigt (2014). The Effects of Competition Policy on Development – Cross-Country Evidence Using Four New Indicators. The Journal of Development Studies, Volume 45, 2009 – Issue 8, pp. 1225-1248. http://www.tandfonline.com/doi/abs/10.1080/00220380902866862#.U761w_mSyVM

[8] Chang-Tai Hsieh and Peter J. Klenow (2009). Misallocation and Manufacturing TFP in China and India. The Quarterly Journal of Economics, Volume 124, Issue 4, pp. 1403-1448. https://academic.oup.com/qje/article-abstract/124/4/1403/1917179/Misallocation-and-Manufacturing-TFP-in-China-and.

[9] Paolo Buccirossi, Lorenzo Ciari, Tomaso Duso, Giancarlo Spagnolo and Cristiana Vitale (2013). The Review of Economics and Statistics, October 2013, Vol. 95, No. 4, Pages: 1324-1336. http://www.mitpressjournals.org/doi/abs/10.1162/REST_a_00304?journalCode=rest#.WMJCEPmGNPY

[10] Productivity Commission (2005). Review of National Competition Policy Reforms. No. 33, 28 February 2005. http://www.pc.gov.au/inquiries/completed/national-competition-policy/report/ncp.pdf

[11] Andrew Leigh and Adam Triggs (2016). Markets, monopolies and moguls: The Relationship between Inequality and Competition. The Australian Economic Review, Volume 49, Issue 4, December 2016, pp. 389–412. http://onlinelibrary.wiley.com/doi/10.1111/1467-8462.12185/abstract . Note that this correlation is not necessarily causal.

[12] Marianne Bertrand and Francis Kramarz (2002). Does Entry Regulation Hinder Job Creation? Evidence from the French Retail Industry. The Quarterly Journal of Economics, Volume 117, Issue 4, pp. 1369-1413. http://qje.oxfordjournals.org/content/117/4/1369.short

[13] Giuseppe Fiori, Giuseppe Nicoletti, Stefano Scarpetta and Fabio Schiantarelli (2012). Employment Effects of Product and Labour Market Reforms: Are There Synergies? The Economic Journal. Volume 122, Issue 558 (February 2012), pp. F79–F104. http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0297.2011.02494.x/full.

[14] US Department of Justice (2016). Antitrust guidance for human resource professionals. October 2016. https://www.justice.gov/atr/file/903511/download

[15] Carlos M. Urzúa (2013). Distributive and Regional Effects of Monopoly Power. Economía Mexicana Nueva Epoca, Volume XXII, Issue 2, pp. 279-295. http://www.scielo.org.mx/pdf/emne/v22n2/v22n2a2.pdf

[16] Begazo Gomez, Tania Priscilla and Sara Nyman (2016). Competition and poverty. View point; note no. 350. Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/662481468180536669/Competition-and-poverty.

[17] Siegfried, John J., and David K. Round. "How did the wealthiest Australians get so rich?." Review of Income and Wealth 40, no. 2 (1994): 191-204. http://onlinelibrary.wiley.com/doi/10.1111/j.1475-4991.1994.tb00058.x/full  

[18] F.M. Scherer (1967). Market Structure and the Employment of Scientists and Engineers. The American Economic Review, Volume 57, Issue 3 (June 1967), pp. 524-531 http://www.jstor.org/stable/1812118. Michael Polder, Erik Veldhuizen, Dirk van den Bergen, Eugène van der Pijll (2009). MPRA paper 18898. https://ideas.repec.org/p/pra/mprapa/18898.html

[19] Mariko Sakakibara and Michael E. Porter (2001). The Review of Economics and Statistics. Volume 83, Issue 2 (May, 2001), pp. 310-322. http://www.jstor.org/stable/3211609

[21] Andrew Leigh and Adam Triggs (2016). Markets, monopolies and moguls: The Relationship between Inequality and Competition. The Australian Economic Review, Volume 49, Issue 4, December 2016, pp. 389–412. http://onlinelibrary.wiley.com/doi/10.1111/1467-8462.12185/abstract

[22] Institute for Mergers, Acquisitions and Alliances 2015. https://imaa-institute.org/m-and-a-statistics-countries/. We convert their figures from US dollars (US$21 billion in 1990 and US$106 billion in 2016) to Australian dollars at current exchange rates.

[23] Andrew Leigh and Adam Triggs (2016). Markets, monopolies and moguls: The Relationship between Inequality and Competition. The Australian Economic Review, Volume 49, Issue 4, December 2016, pp. 389–412. http://onlinelibrary.wiley.com/doi/10.1111/1467-8462.12185/abstract

[24] Australian Bureau of Statistics, Counts of Australian Businesses, Cat No. 8165. ABS, Canberra.

[25] Australian Competition and Consumer Commission (2008). Merger Guidelines. p.37. https://www.accc.gov.au/system/files/Merger%20guidelines.pdf

[26] Stephen Nickell (1996). Competition and Corporate Performance. Journal of Political Economy, Volume 104, Issue 4, pp. 724-726. https://ideas.repec.org/a/ucp/jpolec/v104y1996i4p724-46.html

[27] Caron Beaton-Wells and Neil Brydges (2008). The Cardboard Box Cartel Case: Was All the Fuss Warranted? Australian Business Law Review, Volume 36, University of Melbourne Legal Studies Research Paper No. 393. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1406267

[28] Australian Securities and Investments Commission (2016). ‘Briefing on Competition and Tracker Mortgages’. ASIC, Sydney.

[29] Reserve Bank, ‘Supplementary Information Provided at the Request of the House of Representatives Standing Committee on Economics – 28 September 2016’ https://www.rba.gov.au/publications/submissions/bank-fees-and-margins/handout-standing-committee-on-economics-2016-09-22/pdf/supplementary-information-standing-committee-on-economics-2016-09-28.pdf   

[30] Reserve Bank of Australia, 2017, Financial Stability Review, April 2017, RBA, Sydney, p.41

[31] Byrne, David P. and de Roos, Nicolas, Learning to Coordinate: A Study in Retail Gasoline (January 19, 2017). Available at SSRN: https://ssrn.com/abstract=2570637 or http://dx.doi.org/10.2139/ssrn.2570637.

[32] Dun and Bradstreet (2014). Trade Payments Analysis: Payments at pre-GFC levels. http://dnb.com.au/article-tpa-payment-times-return-to-pre-gfc-levels.html#.WMJGTfmGNPY

[33] Yoni Heisler, ‘Emails reveal that Steve Jobs angrily called Sergey Brin over Google's recruitment of Apple's Safari team’, Engadget, 24 March 2014.

[34] Section 51(2)(b) of the Competition and Consumer Act 2010 (Cth) removes these type of restraints from consideration under the competition law and subjects it to the common law on restraints of trade which is preserved by s4M of the CCA. The combined effect is that these restraints will be permitted only if they do not infringe the common law – broadly the restraint must be reasonable in time and geography otherwise it will infringe the common law principles on restraints of trade.

[35] Christopher Arup, Chris Dent, John Howe and William Van Caenegem (2013). University of New South Wales Law Journal, Volume 36, Issue 1, University of Melbourne Legal Studies Research Paper No. 660. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2341433

[36] US Department of Justice (2016). Antitrust guidance for human resource professionals. October 2016. https://www.justice.gov/atr/file/903511/download

[37] Matt Marx, Jasjit Singh and Lee Fleming. Regional disadvantage? Employee non-compete agreements and brain drain. Research Policy, Issue 44 (2015), pp. 394–404. http://faculty.insead.edu/jasjit-singh/documents/Personal/Marx_Singh_Fleming_RP_PRINT.pdf

[38] Julie Power (2016). Sydney Water threatens legal action as wipes block drains. Sydney Morning Herald. March 6. http://www.smh.com.au/nsw/sydney-water-threatens-legal-action-as-wipes-block-drains-20160304-gnax4u.html

[39] Matt Marx, Jasjit Singh and Lee Fleming. Regional disadvantage? Employee non-compete agreements and brain drain. Research Policy, Issue 44 (2015), pp. 394–404. http://faculty.insead.edu/jasjit-singh/documents/Personal/Marx_Singh_Fleming_RP_PRINT.pdf

[40] ‘Are investors too optimistic about Amazon?’, The Economist, 25 March 2017.


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