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The Effect of Monopolies on Australian market

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Table of Contents

  1. Introduction. 3
  2. Project Objective. 3
  3. Project Scope. 3
  4. Literature review.. 4
  5. Conclusion. 9
  6. Reference. 10

Introduction-

The success of any business organization in the industry that it is involved in is heavily dependent on the fact that how well the firm is able to understand the different aspects of the industry or the market. If any firm is able to adapt effectively to the different situations of the market and serve the consumer market according to its demand, then it is obvious that the firm can guarantee itself a large share of the consumer market (Serra, 2017). However, there is a lot of effort that is needed for this dominance in the market and the following study will contain the discussions regarding how research can be done into the matter of monopoly effect on the Australian market.

Project Objective-

The project or research that will be done on the topic mentioned in the previous paragraph can contain the following objectives.

  • To recognize what aspects of organizations contribute to them being a part of the monopoly.
  • To understand the effects of monopolies on the Australian market
  • To suggest ways to counteract the adverse effects of monopolies on the Australian market

Project Scope-

The success of the research depends on the different activities of that go along with the entire process and the scope for this project is as follows-

  • It will direct the organizations on how to counter a monopoly firm in the industry.
  • Organizations can understand the different characteristics of being a monopoly firm.

Literature review-

From the research work of Karier (2016), it can be evaluated that free markets in Australia have led to large firms gaining monopoly power and being able to restrict some other firms to control the prices of the products. This monopoly market structure is characterized by greater economic inefficiency, lower productivity level and below average standard of living.

Overall it has a bad effect on the Australian market which can easily make the market vulnerable to price fluctuation and higher inflation rates. It was also being supported by the study of Zeuthen, (2018) that monopoly in Australia has aroused due to the government's interventions and reservation of a certain portion of the market to one or more seller. This firm or the company controls the market with greater monopoly power.

For instance, a big retail company like the Woolworths has a lion share of the retail market through their product offerings. It eradicates a major portion of the competition that exists in the Australian and is protected by the government’s policies. Woolworths has established themselves as the sole supplier through the government’s initiation form of physical force, i.e. protecting them from intense competition. In addition to this, many small retail companies are restricted to selling in small regions due to the competitive process.

The growth level is restricted for these companies which could help the Australian market to flourish. Woolworths is doing so many things to keep the cost of production lower with several innovations. On the other hand, Garza and Lizieri, (2018) point out that if other companies are not able to match the cost structure followed by Woolworths, then they will not be able to withstand the level of competition posed by Woolworths. Thus, through the cost cutting methods, Woolworths keep up with the rush of monopoly for creating the difference in the market.

The study of Karier (2016) identified the fact of quantifying welfare losses due to monopoly. Through analyzing the partial equilibrium model, the welfare losses in the Australian market can be analyzed effectively. The welfare losses in terms of profit rate and price elasticity can be felt in a relatively significant manner. The losses were estimated and were confirmed through the research work of Zeuthen, (2018).

It stood to 2% rise of the inflation rate. It was investigated by Barrows (2017) that welfare losses due to monopoly might be higher which has increased the inflation rates. This was due to several reasonable values for the elasticity of demand. It was believed that the limits with which the actual monopoly welfare losses were lying were very much broad and it depended on the extent of actual monopoly power. But QIU and WANG, (2018) stated that welfare losses which Australian market suffered were much lower and it was not stated in previous works.

Several mergers took places which have led to the rise of monopoly in the Australian market. Through the general equilibrium model mentioned in the study of Garza and Lizieri, (2018) showed the hidden facts about the effects of monopoly. It showed that welfare losses were due to the rise in cost price ratios for distributing the goods. This was major problem.

Moreover, as stated by Gilbert (2018) that loss due to the monopoly power in the retail sector of Australia was found to be higher. It was estimated to be around US$ 15 billion. This promoted the consumer loss for many retail companies, and the losses were attributed to income transfers.

A sharp decline of 3% consumers could be observed in by many small retail companies which showed the inefficiency nature of the government to control and save the markets from monopolistic competition.

It was well supported by Dawes, (2017) who showed the example of the French market and the effect of monopoly in many sectors of the French market. They found considerable allocative welfare losses to be around 7.39% of the GDP and were due to the X inefficiencies.

The effect of monopoly on the advertisement sector was also being shown in the research work conducted by Barrows (2017). The findings from this study revealed that social welfare costs have raised which led to an increase in advertising expenses in the Australian market. The cost of monopoly power on an individual firm basis was bigger. For instance, Woolworths spend a huge amount on advertising their products on various platforms which were estimated to be around $20000.

This could hamper the long run process of the firm in acquiring higher profit rates and will fail to include any neutral or socially beneficial process of monopoly. In addition to it, there were no laws in Australian market that could eradicate the monopolistic market structure like that of the USA or any other country. There were no powers on the hands of several commissions to break the power of monopoly even if they wished to do.

The divestiture power was lacking in this scenario, and the trades practiced by many big companies in their individual sectors have resulted in downfall, of the market to some extent. This downfall was quite obvious when the price of related goods have risen to a significantly level. This will lead to a situation where the government will fail to control the prices of the commodities, and the inflation rate will increase significantly.

From the study of QIU and WANG (2018), it can be evaluated that there are three reasons which have the negative effect of monopoly on innovation. These were: Australian firms will not have a competitive force, there will be an increase in a number of firms looking for innovation, and the monopolistic firms will have higher returns. On the other hand, firms may suffer certain losses due to a surplus of supply of goods in the market.

Therefore, other firms who are not enjoying monopolistic type market share may suffer from the deadweight cost of monopoly which could hamper their innovation practice to a greater extent.There are instances where monopoly has affected the market in a negative manner. For example, if any business firm is able to grab a strong hold of a particular consumer market, it has dominance over the market completely; this means that the prices can be set by the organization, as they like.

If the prices are high then the consumers have to buy the goods and it will result in their income getting drained quickly. However, Gilbert (2018) explains that there are organizations that will set their prices as per their objectives. In the Australian market it can be seen that Woolworths, or popularly known as Woolies together with Coles has over 75% dominance over the supermarket industry, but still they have kept the prices of the commodities affordable to attract more consumer attention.

Another negative impact that can hamper the Australian market is the dominance of monopoly in a widely populated industry. For instance, Woolworths holds a large part of the Australian supermarket industry and this can result in the other firms such as IGA and Aldi are getting fewer chances to perform at their best. However, one can argue that the Australian supermarket industry is very open and every firm gets its chance of earning a desired amount of profit, which can be listed as the main business objective.

In addition, Wang (2017) argued that in the process of pursuing this business objective, it is possible that the firms like Woolworths decide to take upon aggressive strategies to secure as much as the profit as possible. In that process Woolworths along with Coles has been successful as they have taken a sustainable approach in the costing department and this has resulted in cheap prices for high value commodities.

Therefore, consumers have preferred Woolies and a recent study conducted show that 24% of the consumer market wants value for the money they are paying. Although, Woolworths and Coles have different organizational operations themselves and it is not possible for every organization to cut prices and still guarantee good quality.

If they do, their profit margins can take a direct hit and this will result in the economical downslide as the Australian market is heavily dependent on the handful of industries such as the Mining Industry, The Banking Industry and the super market industry. To add to this fact, Howley (2015) explained that it is also ideal in one or two industries are operating bulk of any industry.

Monopoly firms can also stop the development of any market by stopping the development of any industry related to the market. As an example, if Woolies do not face enough competition, it can stop investing in the development of the services and a stagnant monopoly can work in favor of decreasing consumer interest, hence decreasing income and hence decreasing Gross Domestic Production.

Research conducted by Canstar Blue, (2018) show that in the Australian supermarket industry 19% of the customers value customer service and staff accessibility and this also explains Woolies have a strong hold in the market.

The massive number of 115,000 employees means that there are staffs always available and this will mean that consumers will want to visit a Woolies outlet more. However, any negligence from the organizations towards the development can be hazardous to the firm itself and the industry.

Monopoly can sometimes be good for the market as well. A monopoly organization can guarantee that there is consistent supply of a particular commodity in the market according to the consumer demands. For example, research conducted by Canstar Blue, (2018) show that in the Australian Supermarket industry, nearly 20% of the consumer value the supply of fresh vegetables, Meat and Fruit.

Woolies has been successful in serving the consumers with this commodity at a commendable rate and it has also made the commodities easy to access as nearly 1000 outlets across the nation has been providing effectively. It was possible that if Woolworths, which is a part of a monopoly market, did not supply according to the demand, the industry would have taken a hit and hence the market would have suffered a negative effect as well. Fortunately, the organization did not let that happen.

Conclusion-

Market depends on the performances of the different industries that reside in a country and in Australia; one of the most important industries is the supermarket industry. One of the main players of this industry is Woolworths as it enjoys more than 50% of the consumer share. The project or research proposal conducted above is a perfect representation of the fact why research needs to be done on the topic of effects of monopoly in the Australian market.

Reference-

Barrows, T.S., 2017. The Effect of Unions on Employee Benefits and Non-Wage Compensation: Monopoly Power, Collective Voice, and Facilitation. In What Do Unions Do? (pp. 168-200). Routledge.

Canstar Blue. 2018. Supermarkets | 2018 Customer Reviews & Ratings – Canstar Blue. [online] Available at: https://www.canstarblue.com.au/stores-services/supermarkets/ [Accessed 29 Dec. 2018].

Dawes, J., 2017. Investigating the Natural Monopoly Effect in Brand Purchasing: Do Big Brands Really Appeal More to Lighter Category Buyers?.

Garza, N. and Lizieri, C.M., 2018. An Empirical Approach to Urban Land Monopoly: A Case Study of the City of Baranquila.

Gilbert, S., 2018. Monopoly Spillover Effects. In Multi-Market Antitrust Economics (pp. 37-49). Palgrave Macmillan, Cham.

Gilbert, S., 2018. Pure Monopoly Model. In Multi-Market Antitrust Economics (pp. 15-33). Palgrave Macmillan, Cham.

Hawley, E.W., 2015. The New Deal and the problem of monopoly. Princeton University Press.

Karier, T., 2016. Beyond Competition: Economics of Mergers and Monopoly Power: Economics of Mergers and Monopoly Power. Routledge.

Karier, T., 2016. Beyond Competition: Economics of Mergers and Monopoly Power: Economics of Mergers and Monopoly Power. Routledge.

Krueger, A.B., 2018. Inequality, too much of a good thing. In The Inequality Reader (pp. 25-33). Routledge.

QIU, Z. and WANG, Y., 2018. The impact of environmental regulation on industrial ecological efficiency under the constraints of administrative monopoly: based on dynamic spatial durbin model and threshold effect. Industrial Economics Research5, p.010.

Ryvkin, D. and Serra, D., 2017. The Industrial Organization of Corruption: Monopoly, Competition and Collusion.

Wang, Y. and Tan, D., 2017. The Influence of Product Market Externality on Dynamic Decisions of Monopoly. Modern Economy8(06), p.806.

Zeuthen, F., 2018. Problems of monopoly and economic warfare. Routledge.

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