Different Market Structures in Australia

Question: Discuss about the Different Market Structures in Australia. Answer: Introduction The number of consumers and producers operating in a market defines the type of the market structure. The four types of market structures are monopoly; oligopoly; monopolistically competitive and perfectly competitive market. In perfect competitive market, there are huge number of buyers and sellers who are engaged in buying and selling homogeneous goods and services. In the monopolistically competitive market, there are huge number of buyers and seller. The producer of this market slightly differentiate their products. In the monopoly market structure, there are only sole seller of a commodity or service that has no other substitutes. In the oligopoly market there are small number of sellers sells to huge number of buyers and engages in high competition among themselves (William 2016). This paper will discuss about the different market structure in contest of Australian market. Four big banks operate under oligopoly market structure; water supply authority enjoy monopoly power in th is sector and clothing and apparel has been selected as monopolistically competitive market structure. Market Structures in Australia Oligopoly Market The banking sector in Australia operates under oligopoly market structure. An oligopoly market is characterised by an industry dominated by few firms, who sell identical and differentiated products. This market structure has significant barriers to enter the market. The banking industry in Australia is dominated by four banks. The Commonwealth Bank (CBA); National Australia Bank (NAB); Westpac (WBC) and Australia and New Zealand Banking Group (ANZ) together have market cap of more than 400 billion dollars (The Sydney Morning Herald 2015). It accounts for more than 85% of domestic loan value. Though the market is highly competitive, but these four banks have high concentration over the market. The banking sector of Australia has highest barriers to enter the market, because of various capital and controlling necessities. Moreover, the barrier is because of the current market power that these four banks holds, due to which no other firm can even begin to compete with these Big 4 player s without high risks and costs. Hence, all these features of the banking sector of Australia can be linked with oligopolistic behaviour. The four banks can manipulate the market. The four banks are separate entity, but majority shareholders and proxy board members are same in these banks. The banks collude to form the cartel and maximize profits like monopolist. The banks repriced their mortgage books without shifting the official interest rates. This indicates the strong oligopolistic market structure in this industry (Stewart 2015). However, the government of this country focusing on reforming the banking sector by enforcing competition. This causes more transparency and allows customers to move freely between institutions. Monopoly Market In the Australian market, Water supply service operates under the monopoly structure in Australia. The Water supply authority of a region is owned by the respective state-governments; thus it is not a nationwide monopoly (NewsComAu 2011). Water is non-substitutable and has low consumer costs, thus it inherent monopoly. Government has restricted to enter this industry and this has made the water supply market monopolistic in structure. The restriction is created because; being it in the hands of private undertakings, the businesses could have benefit from escaping the fair cost. This would have created potential cost for this necessary commodity. To cut cost, the private business could have compromise the quality of water that is not reliable to be drunk. This eventually would have significant impact on the environment. The monopoly in this sector is sustained because, scarcity of water in this country. Therefore, water supply should be even in different areas and excess water will no t be supplied in order to maximize the profit, unlike competitive industry. However, recently, it has been debated to allow private companies to enter this sector. This is because; as water is scarce, more creator of water is required in this country. It is argued by the experts that allowing others to enter the market will make the market competitive and consumers will be benefitted by paying lower price for water. It is offered that private companies will develop new water supplies and will use the pipelines of the state government or other state-owned utility. This is because; establishing new water distribution pipeline all over the state requires huge investment. Therefore, water distribution is supposed to remain under state-owned authority and private firms will be allowed to create water sources for the citizens (Robins 2014). Monopolistically Competitive Market Apart from the firms operating under oligopoly and monopoly market structure, the rest of the firms in Australia are characterized as monopolistically competitive firm. The clothing and apparel industry operates under this market structure. Many clothing brands in Australia are engaged in competition in this industry. They compete with each other to maximize their profit. The clothing and textile firms produces identical products. These firms make their product different from other firms in terms of design of the clothes; quality of the fabric etc. Hence, the clothing brand can set different prices for its own product. Every firms enjoys certain degree of monopoly power. Since the quality; types of fabric; designs of the apparel; quality of stitching vary from each other, the consumers perceive that these products are not identical. Clothing firms differentiate their products and brand by designing their clothes by reputed designer of the industry. This places the firm into the niche market who can charge high price (Okonkwo 2016). Therefore, product differentiation enables the companies of the clothing industry to set price by their own, hence, enjoying monopoly power. There is little barrier to enter the market, as it requires huge spending to make fabrics and design apparels. The firms put effort to establish their brand name. Entering of some international brands into the clothing industry of Australia, that has increased the competition to the local retailers of cloths and apparels (ABC News 2014). Conclusion In this paper, different market structures of Australia have been discussed. It has been found that the four banks of this nation forms strong oligopolistic structure in the banking sector. The water supply service of the various states of this nation operates under monopoly, however, recently private firms are allowed to create water sources. Among many other industries, the clothing and apparel sector operates under monopolistically competitive market. References ABC News. 2014. Retailers struggle as foreign fashion chains hit Australian market. [online] Available at: https://www.abc.net.au/news/2014-09-10/retailers-struggle-foreign-fashion-chains-reach-australia/5735070 [Accessed 12 Aug. 2016]. NewsComAu. 2011.Expert says it's time to end South Australia's water monopoly. [online] Available at: https://www.news.com.au/national/expert-says-its-time-to-end-south-australias-water-monopoly/story-e6frfkp9-1225986642335 [Accessed 25 Aug. 2016]. Okonkwo, U., 2016.Luxury fashion branding: trends, tactics, techniques. Springer. 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