Competition policy will see evolution, not revolution

Competition in Australia is deeply imperfect. But the changes that will improve it seem likely to come not in one big bang, but gradually.

by | 29 Jan, 2025

“Many of our industries are oligopolies: a few big players dominate them. We have just two major supermarket chains, three big energy retailers (who all also have big presences in energy generation), four major banks, three mobile phone networks, two domestic airlines.”


At a glance

  • Competition in Australia is dominated by oligopolies across major sectors, with data showing an increase in market concentration since the early 2000s.
  • Meaningful change will likely come through gradual improvements rather than dramatic overhauls.
  • Despite concerns about market concentration, Australia’s unique challenges of small population and geographic isolation mean that wholesale transformation of competition policy may be less feasible than targeted, incremental reforms to existing frameworks.

As most businesses instinctively know, competition forces them to grow more productive or go out of business. “Competition is a force for good,” says Ewan Rankin, research manager at the centrist e61 Institute think-tank. “It helps drive businesses to invest and innovate and leads to higher quality goods and services and lower prices for consumers.”

Little wonder, then, that policy leaders and thinkers generally want as much business competition as they can get. Competition helps to make whole societies rich.

Headshot of Ewan Rankin
Ewan Rankin, Research Manager, e61 Institute

But societies also recognise competitors will be tempted to cross lines – to exaggerate a product’s capabilities, to make agreements with suppliers for exclusive access, to buy out rivals that look as if they might compete too well.

So, for decades we have been regulating to discourage businesses from anti-competitive behaviour:

  • In the 1980s and early 1990s, battle raged over the merits and rules of corporate mergers.
  • The mid-1990s brought the National Competition Policy, an effort to subject state-owned businesses to some of the same competitive rigour already imposed on private businesses.
  • In the 2000s, the global competition debate has moved to a new question – how far to restrict the “big 5” consumer IT platforms of Amazon, Apple, Facebook, Google and Microsoft.
  • All through this period, the question of competition in sectors such as banking, air travel and groceries has rarely left the public debate.
  • In the past decade the competition question has taken on a new and sharper edge as high-income nations struggle to raise national incomes. 
  • People appear even more sympathetic to concerns about competition after the COVID-19 pandemic triggered a wave of price rises in 2021 and 2022. PwC Australia reported that in its 2024 Voice of the Consumer survey, Australian consumers “overwhelmingly” ranked price rises as their number one worry.

Introduction: A new failure of competition?

In Australia and around the world, consumers and policymakers alike appear worried that we are experiencing a “failure of competition”, and that governments should take action to correct it.

A young US policy thinker, Lina Khan, spurred new attention to business competition in 2017 with a now-famous Yale Law Journal paper, “Amazon’s Antitrust Paradox”. Khan argued for a new approach to regulating business competition – one that sought to broaden competition law’s aims beyond the long-accepted goal of keeping consumer prices down, and to more explicitly rein in big companies such as Amazon and Google.

In 2021, that new approach won a presidential endorsement when then-President Joe Biden unexpectedly elevated her to run the US’s competition watchdog, the Federal Trade Commission.

Headshot of Lina Khan
Lina Khan, US policy thinker

While her term has recently ended, her approach reportedly also has fans on the other side of politics – including US Vice President JD Vance.

No wonder that the Albanese government is conducting a full-scale review which it bills as Revitalising National Competition Policy.

As federal competition minister Andrew Leigh put it to Public Accountant, “the Australian economy isn’t competitive enough, and making it more competitive will be good to consumers, workers and innovation.” Before entering politics, Leigh was a rising star in Australia’s economics profession, with an impressive array of original research on competition and related topics. He has followed the US debate closely and has met with Khan.   

Headshot of Andrew Leigh
Andrew Leigh, Assistant Minister for Competition

All this surely means Australia’s competition laws are undergoing changes.

The Federal Government has already introduced legislation to toughen Australia’s merger laws: among other changes, big mergers will soon need to be notified to the competition regulator, the Australian Competition and Consumers Commission. Could competition be where the Albanese government finally creates an economy-altering reform program?

Maybe. Most competition experts don’t expect 1990s-style big-bang reforms to competition policy. Rather, they expect a series of laws to be progressively altered in the coming years, while people continue to complain about a lack of competition everywhere from supermarkets to search engines.

Supermarket concentration remains a source of frustration for shoppers.

That may be the best result we can expect. Australia’s current competition policies try to strike a difficult balance between encouraging competition and solving a range of other problems. And despite everything, Australia has no convincing new and better model for regulating competition. 

First: How concentrated is Australia’s economy (and is that concentration getting worse)?

Industry concentration is certainly a commonly heard complaint about many Australian industries. Many of our industries are oligopolies: a few big players dominate them. We have just two major supermarket chains, three big energy retailers (who all also have big presences in energy generation), four major banks, three mobile phone networks, two domestic airlines.

Competition minister Leigh has used his own earlier research, as well as Treasury work, to make the case that Australia’s industry concentration has increased since the year 2000. And the e61 Institute also found that in 2017 Australian industries were more concentrated than their US counterparts, and that concentration in Australia had worsened since then.

What’s more, many of these oligopolistic structures seem difficult to disrupt. Big Australian incumbents are often willing to lose money in the short term to undercut the prices of new competitors, as Qantas often has against new domestic airlines, or to match their network build-outs, as Telstra did in the 1990s when Optus started running high-capacity cable down city streets.

Second: How much does concentration damage competition?

Analysts are almost certainly correct that at least some of Australia’s industries are increasingly concentrated. But does this indicate Australia is experiencing some big new failure of competition? That’s less clear.

In a 2022 speech soon after becoming competition minister, Leigh used research by the Treasury’s Jonathan Hambur to make the case that increased concentration is pushing up company profits and consumer prices. Leigh argued that markups – the difference between what a company spends obtaining an item and the price for which they sell it – had on average increased between 2003‑04 and 2016‑17.

The e61 Institute’s research indicates concentration has also reduced business dynamism and worsened the flow of workers into higher-productivity businesses.

But the increases in concentration that e61 and Treasury identified are not huge. On Leigh’s figures, the average market share of the four largest firms in each Australian industry averaged 41 per cent in 2001-2002 and rose to 43 per cent by 2018-19. Treasury’s Hambur estimated markups increased by around five per cent between the mid-2000s and the early 2020s. 

Note: Both top 4 share and Herfindahl–Hirschman Index (HHI) were calculated using unweighted average of industries.
Source: Andrew Leigh, based on Treasury calculations from ABS Business Longitudinal Analysis Data Environment (BLADE) data.

It’s no simple task to say whether this increase in concentration represents a serious new problem for Australian competition. To take just one example: over the past 30 years Australian retail banking, increasingly dominated by four big players, has frequently been attacked as a cosy cartel with only a pretence of competition, according to Reserve Bank research. Yet in that same 30 years, retail banking’s returns on equity have fallen and its net interest margins have more than halved. If Australia had five or six big banks instead of four, would banking have increased its efficiency faster, or offered cheaper loans or high deposit rates? Most economists are reluctant to offer a firm view.

Third: Can regulation change the game?

If we assume for a minute that Australian competition has indeed failed, it’s not clear that Australia can easily use regulation to revive it.

As many analysts have noted over the years, two characteristics probably make efficient economic competition harder to achieve. First, Australia is home to far fewer people than the US, Japan or the big European economies. And second, while other advanced economies (from Canada to Sweden) share our economic size problem, most of those countries are at least close to bigger markets like the US or Europe. Australia still suffers from the tyranny of distance. Economic theory suggests that small, distant economies such as ours will have more concentrated industry structures.

And it is also not clear that we know how to correct a general failure of Australian business competition so as to make Australian business become more dynamic, grow faster and lower prices.

One of the few attempts to answer this question came in 2012 from the then-CEO of the Grattan Institute, John Daley. His report – Game-changers: Economic reform priorities for Australia – aimed to identify policy changes that would substantially raise Australia’s economic growth rate.

Competition policy changes didn’t clear that bar. Game-changers pointed out Australia’s oligopoly-heavy industry structure.

Headshot of John Daley
John Daley, former CEO, Grattan Institute

But as Daley told Public Accountant, “I haven’t seen anyone put up a convincing case that there are a bunch of reforms waiting to happen that might … shift that.” 

Monash University economist Professor Stephen King, a member of the Productivity Commission, has come to a similar conclusion. In a 2023 paper he argued that the evidence for a failure of Australian competition is “at best is ambiguous”: Australia has a complex landscape of competition, and “there is no simple link between indicators of competition such as concentration levels, indicators of reduced dynamism such as falling business investment, and falling productivity growth”.  

Competition minister Andrew Leigh says he is more optimistic that government action can have a substantial effect. He told Public Accountant that a revitalisation of competition policy in the 2020s offers just as big a payoff as the earlier 1990s version produced – “one to three per cent of GDP”.

But that revitalisation is unlikely to come from big new ideas about competition. Lina Khan’s FTC failed repeatedly to interest US courts in her vision of competition. In the second half of 2024, it scored some court victories – but largely by using more traditional views of competition law. 

Conclusion: Reforms can still improve Australian competition

Economist Ian Harper, University of Melbourne professor emeritus and a Reserve Bank board member (but not speaking in that capacity), headed the previous big review of Australian competition policy in 2015. 

At the end of his 2023 paper arguing against the “failure of competition” idea, King points out that we have plenty of ideas for change to our competition policy – notably, recommendations from Harper’s 2015 review which have still not been put in place. Those changes, King argues, are modest but justified, and would “improve Australia’s competition laws and institutions”.

Headshot of Ian Harper
Ian Harper, Economist, University of Melbourne Professor Emeritus and a Reserve Bank board member

Harper himself also expects the future of competition policy to be not a big-bang change but a succession of small reforms such as more of his 2015 recommendations, and the current merger legislation. We won’t be able to prove that any of these individually made Australian businesses more competitive, Harper argues, but many of them will nevertheless have useful results. Harper makes an analogy to a long-term diet and fitness regime: you won’t notice the difference at first, and you may never know which changes worked best, but at some point, your doctor will probably point out that your cardiovascular health has improved. The same is true of improving Australia’s competition policies.

Says Harper: “Let’s just try to find where these obstacles are and work away at them.”

David Walker is a former head of policy for the Committee for Economic Development of Australia; he now runs report-editing consultancy Shorewalker DMS.


Read IPA’s statement on the Harper Review and competition policy reform: Competition policy reform: Get on with it

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