In an oligopoly market structure, small number of firms captures the largest share of market. There are some basic criteria which can be seen in this market system. The chief characteristics that distinguish an oligopoly market from other market structures, is the interdependence among firms.
Interdependence: Under oligopoly market, firms are taking decisions interdependently. This means, under this market system, competition is very high. Hence, if a firm change its price and products then it will directly influence its rival firms and as a result, the rival firm will change its price and product (Green, Marshall & Marx, 2014). Therefore, a firm under oligopoly market does not take only market demand but also other firms’ reactions within this industry. If a firm increases its product price ten its competitor firms will not increase their price level. However, a decrease in price of a firm’s product will affect other firms and as a result, they will also decrease their price level.
Advertisement and Costs of Selling: Advertisement and costs of selling play an important part under the market structure of oligopoly. Firms apply those tools to capture a larger share and maximum number of selling in this market (Schroeder & Tremblay, 2016). Hence, to advertise product and other measures related to sale promotion, a firm has to bear some costs. These are the chief features of an oligopolistic firm.
Group Behaviour of Firms: In an oligopoly market, group behaviour of firms can be seen. There can be two, three or more than three firms within this group. Each firm enjoys a small part of the market and tries to maximise its profit. However, they know that a small action of any firm will influence the action of other firms in this group. This can be seen by the price strategy of firms.
Competition: Another feature of an oligopoly market is competition among firms. As the number of sellers is small in this market, each firm knows about the action of its rival firms. Hence, every firm remains aware and observes the action of its close competitors to take further decision. Hence, a true competition can be seen in this market. True competition indicates a constant struggle, great rivalry and that can be seen only under oligopoly market.
Interdependent Demand Curve: Interdependence demand curve can be seen in the oligopolistic market. This mutual interdependence of demand curves among different firms creates uncertainty. Moreover, it is difficult for each firm to implement a policy related to price-output. They will not think that after changing price of their own products, rival firms will keep their prices of products unchanged. Hence, due to this interdependency, a firm cannot draw its demand curve except when the structure of interdependence is nicely defined.
Rigidity of Price: Price rigidity can be observed within an oligopolistic market. When a firm reduces its price level, its competitor will immediately apply this strategy by reducing price level. As a result, a price war can be seen under this oligopolistic market condition. This effect will lead a rigidity of price in the market.
Constraints Related to Entry and Exit of a Firm: In short-run, a firm faces barriers to take entry into the market or to exit from the market. There are some important factors which make barriers to enter into the market. These factors are economies of scale, technology and strategy of a firm, patents and government licenses. There are also some other additional sources, like government policies, that create barriers so that new firms cannot enter into the market.
Hence, a kinked demand curve can be seen in an oligopoly market. This kinked demand curve implies prize rigidity within this market. This kinked demand curve is shown in below figure.
Fig1: Kinked Demand Curve
Source: (created by author)
The structure of banking sector in Australia follows an oligopoly market system. Performance and structure of each bank are essential as those banks confirm that they have competition. There are four large banks that dominate this banking industry in Australia (Tyers, 2015). The amount of competition is small in this banking sector as each bank closely observes the operational strategies of other banks. Activities of those dominating banks have shown an increasing profitability and assets return compared to other international banks that operate under a free market.
The chief banks of Australia are National Australia Bank (NAB), Westpac (WBC), Commonwealth Bank (CBA) and Australia and New Zealand Banking Group (ANZ). These four banks possess around 85% of the total Australian domestic loan value and also have a collective market share of over $400 billion.
In Australian banking sector, there is a highest barriers to enter or exit. This is one of the important criteria of oligopoly market. The reason behind this highest barrier is not due to different regulatory requirements and capital. This is also due to the higher level of market power, which the current large industries possess. This pre-existing dominating power is the largest barrier to take entry of new banks.
These large banking sectors have built a cartel type arrangement. The reason behind this arrangement indicates that the majority of shareholders of all those four banks are equal and as a result, they have equal interests for these banks. There are four major shareholders within this banking sector. These are HSBC, JP Morgan Chase and Citibank. Those shareholders try to maximise their level of profit. This will be possible if monopoly market exists in within this industry. However, as there are four major banks, a management of cartel type will help those shareholders to maximise their profit. This also creates barriers for other financial firms from entering into the banking industry.
Banking industry of Australia has a basic consideration to assess its competition level. This banking industry has remained the chief financial group within the financial system of Australia. These four large banks have occupied the largest share of market at the national level and continue their dominant position in the market.
Higher Level of Income: Due to increasing productivity level of Australia and higher level of export, average income of each individual and household income have increased. By increasing amount of income, each individual will try to improve their housing quality. There is more than one house for upper class citizens of Australia to spend their vacation.
Demographics: In Australia, the average number of household has decreased for various reasons. These are late marriage, increasing number of divorce and fewer children. This, on the other side, increases the demand for house for this given population. Hence, demand for house has increased by a single person rather than a family. Moreover, people of other country go to Australia for higher studies and for job purpose. This increasing number of immigration also has increased the demand for house in this country, for example, in Sydney and Melbourne.
Higher Rents For House: In Australia, the amount of rent is increasing since the last few years. This effect further influences many people in Australia to buy a new house. This further increases the demand for housing in this country. However, due to higher rent, many Australian actually cannot afford new house. Hence, this effect is quite ambiguous.
Lower Rate of Interest: Interest rate for home loan policy decreased during the middle of 1990a to early 2002. This decreasing level of interest rate increased the amount of demand for households as people could borrow from banks easily and also helped to increase the demand for households. The chief reason behind these falling interest rates of housing policy was due to the lower interest rate policy of the Reserve Bank because of lower inflation occurred.
Easy to Grant Loan: Like low rate of interest rate, it is also easy to get loan for purchasing a house. Due to deregulation, the financial housing market of Australia has developed wider range of products. Moreover, credit is also available to all borrowers who can potentially afford repayments.
Speculation of Demand: House is not only demanded to live. In Australia, It is also demanded as house is considered as a speculative asset. This attitude influences many citizens of Australia to buy a second house as an investment.
Effects of Tax: People of Australia demand house as a speculative investment because of taxation system in Australia. There are some policies of taxation systems in Australia that attract people to invest in speculative market rather than other alternative investments.
These all factors which are mentioned above, can affect the demand for affordable houses in Australia (Shakur Mohamed & Hadi, 2017).
The price of house is very high in Sydney and there are many citizens who are trying to buy a new house. Politicians are desperately trying to help people so that they can buy a new house (Christensen, 2016). They have provided various solutions that can help them. Among all these solutions, the supply-side solution is important. Hence, it is better to explain the effect of this policy. The government has made new houses and apartments. However, price of these houses and apartments are not cheap.
There are many thinkers and governments, who have suggested different solutions for houses in affordable prizes. However, according to some politicians, this crisis of housing can be solved by applying a multi-pronged approach. Though the government is trying to increase the supply of affordable houses, it can be seen that foreign investors are buying more houses rather than Australian people. Hence, it is important to control this foreign investors to invest in Australian housing.
To meet the increasing demand of housing in Australia, the government of this country needs to increase significant number of houses. In this context, three solutions related to supply-side can be explained. Those solutions addressed three major challenges that Australia faces. These are finding new lands to live, remove barriers from cities and making productive construction sector.
Finding New Lands: The chief constrain to build a house or apartment is to find out lands that become scarce at present. Popular cities with congested population need to focus on simple density instead of building new apartments for citizens (Olanrewaju et al., 2017). This will include various structural changes. These are redeveloping residential structures that are already existed, permit for increasing higher floors, decreasing restrictions related to heights and to allow higher density for specific zones. There are also some cities which do not need to expand density; rather they take advantage of lands that are presently underutilised to allow higher density. These sites are indentified as important to redevelop.
It can also be seen that there are some lands within a city or outside a city that are idle as no one is using this land for any purpose. Building new apartments or houses on these vacant places may help to decrease the pressure for supplying houses. Subsidy may encourage builders to build houses on those idle places. Moreover, the government of Australia can allocate different unused public lands to develop housing. Military bases, transit hubs and retired sports facilities can create good sits for building houses. Houses of lower or middle income can easily facilitate those sites by government’s ensuring to sale those lands for developing affordable houses. Large industrial sites, agricultural or underdeveloped lands that are now being unused, may be used to build houses.
The strategies for delivering houses include financing, development of infrastructure, urban planning and regulations related to land use, constructing approaches and delivery and so on. Existing residents may know about the redevelopment of their surrounding areas. This redevelopment will be organised due to lower value of home, overcrowded schools and congestion. There are many cities that have established public hearings or initiatives on ballot to address the concerned communities that often result small development of houses. There are various processes to make and plan a city inclusive and dynamic, for example, digital surveys.
It is important to make productive construction sector to make further constructions in Australia. Through better planning processes, onsite execution will be improved before starting construction on a site. Some chief performing indicators will be used to ensure activities that will be completed on budget and on time. Moreover, digital adoption will help construction industries to increase their productivities.
Reference:
Christensen, P. H. (2016, January). Investigating Solutions To The Affordable Housing Supply Challenges In Sydney, Australia: Considering Alternative Housing Typologies. In Pacific Rim Real Estate Society 22nd Annual Conference.
Green, E. J., Marshall, R. C., & Marx, L. M. (2014). Tacit collusion in oligopoly. The Oxford Handbook of International Antitrust Economics, 2, 464-497.
Olanrewaju, A. L., Lee, L. T., Seong, Y. T., Mine, N., & Teng, C. T. (2017). An Investigation Into Design Criteria for Affordable Housing Supply. In MATEC Web of Conferences(Vol. 103, p. 03013). EDP Sciences.
Schroeder, E., & Tremblay, V. J. (2016). Strategic advertising policy in international oligopoly markets. The International Trade Journal, 30(1), 3-13.
Shakur, E. S. A., Mohamed, A. F., & Hadi, A. S. A. (2017). Housing Affordability Factors for Urban Liveability-A Preliminary Study. International Journal of Property Sciences (E-ISSN: 2229-8568), 7(1).
Tyers, R. (2015). Service Oligopolies and Australia’s Economy?Wide Performance. Australian Economic Review, 48(4), 333-356.
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