The market power of Australia’s largest firms has grown in the last two decades, and price mark-ups have increased.
Andrew Leigh, the federal Assistant Minister for Competition, Charities, and Treasury, will make those observations this evening when he delivers the F.H. Gruen Lecture at the Australian National University.
He will draw on new Treasury analysis of microdata from the Australian Bureau of Statistics (ABS) to show that Australia’s economy has become more sluggish since the turn of the century.
“Over recent decades, there have been a number of significant changes in the Australian economy,” he says in a forward copy of his address.
“The job-switching rate has fallen. The business start-up rate has declined. The largest firms have increased their market share. Mark-ups have increased.
“All this suggests that the Australian economy has become less competitive.”
Dr Leigh’s speech will come at an interesting time.
In Australia at the moment, inflation is running at an annual pace of 6.1 per cent, which is well ahead of wage growth.
Some economists say many large businesses are partly to blame for that inflation because they have been using their market dominance to exploit the situation and collect huge profits during chaotic times.
The gas giant Santos, for example, recently reported a 300 per cent increase in its half-year profit while households on Australia’s east coast face a potential energy shortfall.
Dr Leigh says even before the pandemic, growing market concentration in Australia had seen mark-ups increase in recent decades.
A “mark-up” refers to the difference between the price that a company charges for its product or service (to guarantee a profit) and the cost of production.
“Under perfect competition, mark-ups should be small – reflecting only the need for business owners to make a return that compensates for their risk,” Dr Leigh says.