Competition is the best way to fuel growth and end tacit collusion, Herald Sun, 5 February 2017
Do you know which day of the week is cheapest to buy groceries? Or which day of the week is cheapest to buy whitegoods, cars and home appliances? Spoiler alert: there isn’t one! So why is there a cheap day to buy petrol? If hundreds of petrol stations really are engaged in dog-eat-dog competition, why do they all raise prices on the same day of the week?
After decades of researchers trying to understand bowsernomics, a new study may have cracked the nut. Economists David Byrne from the University of Melbourne and Nicolas de Roos from the University of Sydney analyse nearly 2 million daily petrol prices. Alarmingly, they find that petrol retailers have been engaged in ‘tacit collusion’, resulting in coordinated prices, less competition and higher margins for retailers.
To be clear, these experts are not alleging the type of collusion that involves secret meetings, fake moustaches and disposable mobile phones. Rather, it is ‘tacit’ collusion where, through a gradual and unspoken process, firms slowly converge on the same pricing strategy so as to maximise revenues.
Sifting through the data, the researchers produce the economic equivalent of an Agatha Christie novel. They find 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.
Here’s how the game ended up being played. 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.Read more
Why the battle over hiring rival employees could be the next big challenge for Australian workplaces, Business Insider, 19 January 2019
In 2006, Michael Devine worked as a computer scientist for the tech-giant Adobe in Seattle, Washington. Like most, he was always on the lookout for new and exciting job opportunities. But strangely, for a reputable computer scientist in the heart of Silicon Valley, the offers weren’t flooding in.
Four years later, Michael found out why. It turned out that his company 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’.
When he realised how the firms had colluded, Michael Devine wasn’t happy. He and 64,000 other employees filed a class action and ultimately received a settlement. Unfortunately, it was only the tip of the iceberg. Soon after, the online retailers Ebay and Ituit were caught doing the same thing. So were the film producers Lucasfilm and Pixar. It wasn’t just the tech-giants, either. Hospitals had agreements to fix the pay and conditions for temporary nurses. Fashion designers were caught trying to reduce the pay and conditions for models. The list goes on.
What’s most alarming was just how widespread this conduct was once US regulators started looking. It made me worry: is this happening in Australia?Read more
Baby Steps Lead to Big Achievements, The Chronicle, 10 January 2017
Fifty days into his walk across Africa, Canberran Matt Napier had braved the lion-filled ‘danger zone’ in Botswana, experienced the pain of blisters-on-blisters, and lost 15 kilograms. Not only was he distributing soccer balls to needy community groups, but he was doing so while living below the poverty line. He spent less than US$1.50 a day of food, which meant ‘the hunger pains are so bad I feel like I am going to faint’.
Yet when I interviewed Matt on my podcast last month, he was full of enthusiasm for his next challenge, and constantly thinking about innovative ways of raising money to reduce global poverty. In fact, I’d challenge anyone who meets him not to come away feeling more energised about Australians’ ability to do good in the world.
New Year’s resolutions are a great way to shake us out of our habits, and encourage us to try something new. The problem comes when we pick challenges that don’t have a path to get there. The major goal of ‘Walk the Kokoda Track’ is a whole lot more achievable if it comes with a minor goal of regularly walking up Mt Ainslie. The big aim of mental calmness may be easier to reach if it goes with using the Headspace meditation app for ten minutes a day.
So whether your goal is walking across Africa or being a better friend, I hope 2017 is a good year for taking baby steps to make big changes.
Andrew Leigh is the Federal Member for Fenner and this resolution was first published in The Chronicle, Tuesday 10 January, 2017. His ‘Good Life’ podcast is available via iTunes and other podcast apps.
Banking on a Fairer System for All, Daily Telegraph, 16 January 2017
Seventy-one years ago, economist John Maynard Keynes quipped ‘if you owe your bank manager a thousand pounds, you are at his mercy. If you owe him a million pounds, he is at your mercy’.
It’s a cracker line – but it isn’t true anymore. In today’s money, Keynes’s million pound debt would be about 1/2000th of the loan book for one of the Australian big four banks. In the ‘too big to fail’ era, banks are rarely at their customers’ mercy.
Banking is one of Australia’s most concentrated industries. A new analysis from the Australian Securities and Investments Commission looks at the market share of our largest four banks: the Commonwealth Bank, Westpac, ANZ and NAB. It finds that they control 77 per cent of all banking assets, 80 per cent of mortgages, 75 per cent of credit card transactions and 80 per cent of household deposits.
Australia’s banks are big by international standards. Our banking sector is more than twice as concentrated as that of the United States, and more concentrated than banking in the major advanced economies.
Australian banking is becoming more concentrated. In 2007 the big four controlled 65 per cent of Australia’s banking assets. Today they control 77 per cent. They are also expanding into other markets such as funds management, financial advice, wealth management and mortgage broking.Read more
It's Time To Put Markets Ahead Of Monopolies, Huffington Post, 6 January 2017
If you're looking for a good economics game to play this summer (and let's face it, who isn't?), then here's one of our favourites. Try seeing how many industries your family can name that are not dominated by a few large players. We guarantee that this isn't a game that will tie up the conversation all night.
In our recent study, published in the December issue of the Australian Economic Review, we calculated market concentration across the Australian economy. Unlike other countries, Australia's government statistician doesn't compile data on market share, so we instead used data drawn from a private firm: IBISWorld Industry Reports. For each of 481 industries, we measured the market share held by the four largest firms, a standard measure of market concentration.
Applying the rule of thumb that a market is concentrated if the largest four firms control one third or more, we find that more than half of Australia's industries are concentrated. For some industries concentration is higher still. In department stores, newspapers, banking, health insurance, supermarkets, domestic airlines, internet service providers, baby food and beer, the biggest four firms control more than 80 percent of the market.Read more
Sir Tony Atkinson: The Economist who had the measure of inequality, Canberra Times, 4 January 2017
If you've ever referred to ‘the 1 percent’, you're using the work of Tony Atkinson. Tony, who died on 1 January, aged 72, contributed as much as any modern economist to the study of poverty and inequality.
When I first met Tony in the early-2000s, I was struck by the contrast between his exalted status and his willingness to engage with a mere PhD student. He was the head of Oxford's prestigious Nuffield College, and had recently been knighted by both the British and French governments. It always made me smile when I thought that the only ‘Sir’ I knew was my inequality coauthor.
Trained originally as a mathematician, Tony could crunch numbers with the best of them. But like Adam Smith and John Maynard Keynes, he recognised the importance of economics being grounded in history and politics. He was generous to intellectual predecessors like his Cambridge teachers James Meade and Joan Robinson. When we worked together on the antipodes, he made sure that our articles acknowledged the groundbreaking work of Australian researchers like Timothy Coghlan and Colin Clark.
Tony's interest in poverty and inequality was piqued in the 1960s, when he worked with deprived children in Hamburg, Germany. Over the next five decades, there was virtually no aspect of the field that he left untouched. He created his own inequality measure (the Atkinson Index), devised a novel technique for estimating wealth inequality from inheritance data, and shook up public finance through his work on optimal taxation with Joseph Stiglitz (who would go on to win the Nobel Prize).Read more
Off with her head (on our coins)! The case for an aussie republic in 2017, crikey.com.au, 22 December 2016
This week, the Australian National University published its ‘Trends in Australian Political Opinion 1987-2016’. The document compiles the results of the Australian Election Study surveys, which have been undertaken after every election to gauge political opinion.
Among the fascinating findings is the percentage of Australians who favour a republic. After the 2013 election, with a monarchist Prime Minister, support for a republic had ebbed to 53%, its lowest level in nearly three decades. In 2016, with the Australian Republican Movement's former leader as Prime Minister and an Opposition that had made achieving an Australian republic a key part of its 2016 election platform, support for a republic was unchanged, at 53%.
Could this be spun positively? Perhaps. It is the first time since 1996 (when support was at 66%) that support for a republic has not fallen in the Australian Election Study surveys. Yet the brutal reality is that even if 53% support carried through to referendum day, there is little likelihood that a referendum would carry the required four out of six states. Despite the barnstorming efforts of Peter FitzSimons and the Australian Republican Movement, support for having one of our own as head of state is as low as it's been in a generation.Read more
Why You Should Host December Drinks, The Chronicle/The Queanbeyan Age, Tuesday 6 December 2016
The other day, I was thinking about the many ways our neighbours have helped us. They’ve loaned us lawnmowers and camping tents, looked after a child when another suddenly had to be taken to the emergency room, and helped locate our dog when he snuck under the fence.
But as a society, we’re less likely to know our neighbours than in the past. One survey asked people to count the number of neighbours of whom they could ask a small favour. The average answer given in the 2000s was 1½ fewer people than when a similar survey was done in the 1980s. Another question asked people how many neighbours they had on whom they could drop in uninvited. This time, respondents reported an average of three fewer close neighbours than in the 1980s.
What can we do about it? For the past decade or so, our family has organised December drinks for our local street. We pick a date, type up a simple invitation, and invite people to join us in our backyard for drinks and nibbles.
As it happens, we quite like our neighbours. But December drinks would be worthwhile even if we didn’t. A friendlier neighbourhood is a safer and happier place to live. Reuniting with old-timers and getting to know the new arrivals is an activity that pays off for the rest of the year.
So why not consider inviting your neighbours over for a summer drink? Tis the season – to get connected.
Andrew Leigh is the Federal Member for Fenner, and the author of Disconnected.
Why Unions Matter in Australia, The Canberra Times, 10 December 2016
Last week, I read in the press that the Turnbull Government intends to spend 2017 saying to the electorate that unions do a lot of damage to the economy. But while we prepare to re-live Groundhog Day, it’s worth answering the question ‘what did unions ever do for us?’.
Over the years, unions have brought about lasting gains in the workplace. Sick leave in the 1920s. Annual leave in the 1930s. The eight hour day in the 1940s. Unfair dismissal protection in the 1970s. Banning asbestos in the 1980s. The weekend. Careful economic research finds that unions have a causal impact on making workplaces safer. Today, unions are making the case for family and domestic violence leave.
Unions have often found themselves on the right side of history. Maritime unions refused to load ‘pig iron’ onto Japanese ships in the late-1930s because they foresaw the risk that it would come back in bombs. When 200 Gurindji people walked off the Wave Hill cattle station in 1966, it was the trade union movement that supported the right of Indigenous people to be fairly paid. If you’ve ever enjoyed Centennial Park and the Sydney Botanic Gardens, then you should thank the union members who stopped them being destroyed in the 1970s.
Unsurprisingly, unions also increase wages. One recent study finds that unions increase wages by 5-10 percent. Given that union dues are generally 1 percent or less, this is a pretty good rate of return.Read more
‘EXPLAINING THE RISE OF AUSTRALIAN INEQUALITY’
JUST IDEAS TALK #2
PER CAPITA’S REFORM AGENDA SERIES
MONDAY, 5 DECEMBER 2016
There are many forms of inequality, but perhaps the starkest is the difference between those who own no assets and earn their living by selling their labour – and those who earn vast assets, and can live off the proceeds.
Between these two extremes lies home ownership. It’s not a perfect marker, but if you don’t own a home, it’s likely you live by the sweat of your brow. Conversely, if you’re living off your investments, it’s a pretty good bet you own your home.
At the end of World War II, Australia was a nation where just 53 percent of households owned their homes. In the major cities, the figure was just 46 percent. Most city-dwellers rented. And most homes were made of wood or fibro cement.
Then in the post-war years, something remarkable happened. The Australian home ownership rate surged. By 1954, it was up to 63 percent. By 1961, it was 70 percent. In just over a decade, the distribution of Australian housing wealth became significantly more equal.
It wasn’t just homes. Shared prosperity in the post-war decades meant cars became cheaper. By the 1960s, most Australian homes had a vacuum cleaner, a washing machine, a television and a fridge – items that in the pre-war era were only owned by the most affluent. Even access to university was shared. For someone like my grandfather Keith Leigh, attending Melbourne University would have been impossible on a modest clergyman’s wage. Only a post-war veteran’s scholarship made it feasible.
The intellectual seeds for these changes were sown in John Curtin’s white paper on full employment, and his clearly professed view that ‘there will have to be a fairer distribution of wealth’.
But the surprising thing is what happened next.Read more