Recent analysis shows that market concentration has been increasing in Australia over the past 20 years. But what does this mean for actual competition? Dominant firms in concentrated markets may still act competitively if there is some threat from new entrants or growing competitors.
New research by the e61 Institute uses granular firm microdata to update estimates on market concentration in Australia, and investigate its link with business dynamism at a detailed industry level. We find:
- Australian industries were more concentrated than their US counterparts in 2017, and concentration in Australia has worsened since.
- Major players in concentrated sectors are less likely to be displaced as a leading firm over time.
- Increased concentration is linked to fewer new entrants in an industry.
- Concentrated markets commonly exhibit more anti-competitive behaviours, such as ACC infringement notices.
As a case study on the real-world impacts of concentration, we analyse the retail petroleum market. We find that fuel stations with fewer nearby competitors impose higher margins on consumers.
These findings raise concerns that the observed increase in market concentration in Australia is not benign and has potential competitive consequences.