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Monopolies Good, Bad, What If's

Correct @PhilT. Market dominance does not mean a monopoly.
If you want to see real protected monopolies in Australia, look no further than airports. Or transport insurance like the TAC in Vic. Or loads of Government pseudo commercial organisations that provide services that have zero competition and charge whatever they want. Vicroads springs to mind.

Hi @Gregr,

Your post has some tantalising what if’s, so I hope you are not offended by me turning this into a new topic as it has wandered away from price matches and price beats.

That is a good example of a government monopoly that at face value protects and supports those injured in vehicular accidents, but there have been ongoing reports it morphed into anything but a support organisation, worrying about its own profitability.

has many aspects. The have responsibility for building roads and vehicle rego. The first thought that came to mind was how would it be if vehicle rego was available from the open market, like an internet domain? Not considering the revenue aspects used to build roads or run safety programs, or [shudder] fund ‘safety cameras’.

The question is are some monopolies natural and introducing competition counter-productive no matter how feral the monopoly behaves? In the cases cited is the failure with TAC or Vicroads, or the political system that spawned them but declines to manage them. eg most of our governments are fond of anything they can invent or create to bring in revenue, and they are more often equally enthusiastic to decline reducing it to non-profit.

Another thought is governments often have agencies to assure commercial monopolies do not take over markets to the point of breaking up companies and creating faux competition (such as our utilities markets as some of us see it), yet they ‘build their own’ and protect them to their ends.

Considering the size and cost of a commercial airport, the need for air traffic control, how would opening competition to another airport work? Would it drive costs up or down because of the critical mass (airlines, infrastructure, passengers and convenience) to make it work?

Are some monopolies just naturally required for those or other reasons?

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Not to mention the Port Authorities.

It makes me wonder, where are our anti-monopoly laws???

Adam Smith, “the father of modern capitalism”, saw monopolies as one of the greatest threats to free markets and fair pricing. He saw governments as being the only power that could stand up to commercial, especially monopoly, power. Where is our government when we need it?

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Perhaps banking certain political donations?

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I doubt that the concentration of hardware stores in Oz is anything like enough to be called a monopoly. Bunnings is the biggest chain but there are others and there are still many small operators. I am not saying their attitude towards their supposed price guarantee is OK but it isn’t monopolistic.

The topic is covered by the Competition and Consumer Act 2010. which covers many different trade practices, the section of restrictive practices is Part IV.

Part IV: Restrictive Trade Practices (from Wikipedia)

The restrictive trade practices, or antitrust, provisions in the CCA are aimed at deterring practices by firms which are anti-competitive in that they restrict free competition. This part of the act is enforced by the Australian Competition and Consumer Commission (ACCC). The ACCC can litigate in the Federal Court of Australia, and seek pecuniary penalties of up to $10 million from corporations and $500,000 from individuals. Private actions for compensation may also be available.

These provisions prohibit:

  • Most Price Agreements (see Cartel and Price-Fixing)
  • Primary boycotts (an agreement between parties to exclude another)
  • Secondary boycotts whose purpose is to cause substantially less competition (Actions between two persons engaging in conduct hindering 3rd person from supplying or acquiring goods or services from 4th)
  • Misuse of market power – taking advantage of substantial market power in a particular market, for one or more proscribed purposes; namely, to eliminate or damage an actual or potential competitor, to prevent a person from entering a market, or to deter or prevent a person from engaging in competitive conduct.
  • Exclusive dealing – an attempt to interfere with freedom of buyers to buy from other suppliers, such as agreeing to supply a product only if a retailer does not stock a competitor’s product. Most forms of exclusive dealing are only prohibited if they have the purpose or likely effect of substantially lessening competition in a market.
  • Third-line forcing: A type of exclusive dealing, third-line forcing involves the supply of goods or services on the condition that the acquirer also acquires goods or services from a third party. Third-line forcing is prohibited per se.
  • Resale price maintenance – fixing a price below which resellers cannot sell or advertise
  • Mergers and acquisitions that would result in a substantial lessening of competition

Notice that ‘misuse of market power’ is broader that just forming a monopoly, it also covers concentration of buying power (oligopsony) such as the big supermarkets wield.

There are some efficiencies derived from the buying power of a chain such as Bunnies, which tend to lead to lower prices, so it isn’t all bad. Obviously if they get so big they kill competition that is bad for the consumer.

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If @jen, you consider Bunnings to be a monopoly then you do not understand what a monopoly is. They are a company that does retail very well and gives customers what they want at prices they like. Others who cannot, lose business and may well fail.
JbHifi is another retailer that has caused the demise of other businesses simply because they do what they do so much better.

…and sometimes because their equally astute and successful competitors are offered enough money to sell their businesses to JBHiFi (eg The Good Guys), reinforcing their market dominance.

Yet market dominance a monopoly.

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Fine by me @PhilT to spin this off. The point of mine is that market dominance does not mean a monopoly.
The Gov put in place the “four pillars” rules on the big banks to stop any of them merging with or taking over others. I think that has worked well.
With airports they are big infrastructure, and you really do not need more than one in any geographic area. But that gives them the ability to charge pretty much what they want for things like landing charges, passenger handling charges, car parking, rentals on businesses operating in the terminals.

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There are many instances where a monopoly works best. If we’re stuck with a monopoly, then experience shows that a public sector monopoly works least badly. The profit motive promotes corruption. The public sector is not immune, just less susceptible.

One that came to light comparatively recently is falsification of analysis reports for export coal. The Chinese actually do have a case there. If testing was a public sector monopoly, corruption would be less likely.

Yes there are natural monopolies. It happens when the cost of the infrastructure to support a service makes competition infeasible.

For example electricity poles and wires, water and sewage connections, railways, communications in some situations. In these cases the government ought to be the owner operator and be accountable to the electorate for the amount of profit they make.

In such cases the set-up costs are such that having more than one supplier may well make the service more costly than having a monopoly as servicing the same or similar capital debts of multiple players will all have to be recovered from the consumer by raising prices instead of just one.

The fans of privatisation realise that selling off the right to make whatever the market will stand is not such a good idea as it may lead to negative electoral outcomes. Typically prices are moderated by having some kind of public price control built into the sale. Such controls are artificial and go begging for opportunists to find ways around them to increase profits. Taking advantage like that is a form of rent seeking which is not ‘rent’ in the common meaning of the word.

An example is selling off poles and wires where the private operator had to justify prices for electricity based on costs but where costs rose in response to capital works under the rules they were pretty well rubber stamped with approval. The result was ‘gold plating’ where networks were improved to a degree that was hardly warranted because the operator could automatically get their investment back by raising prices.

So ‘monopoly’ is not always a dirty word as the consumer can be better off with one in some cases.

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Outside the South East corner of Qld, Ergon Energy, a Qld Government owned corporation, has a complete monopoly on the distribution and sale of electricity.

They have managed to gold plate the network, at least from a cost perspective if not a reliability perspective, as it continually fails in FNQ.

They have also managed to raise their electricity prices in a similar manner to private suppliers elsewhere.

And when Pitt was the Trearurer, he happily took $4 billion from the Qld Government owned electricity corporations to prop up the budget.

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My reason for raising the example was not to suggest governments are always right or efficient (they aren’t) or to invite a pile-on towards electricity authorities but to explain options for managing natural monopolies. I think I mentioned that government profits need to be accounted for at the ballot box.

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Some years ago a US state (S.Carolina from memory?) raised its taxes and the only basis was ‘keeping up with the rates in neighbouring states’. Could you make that up as the sole justification?

The business plan smells like government is eager to and planning to sell it off even if in the longer term, so is making it as valuable as possible.

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At the risk of going OT, one side brags about surpluses and rarely gets into the detail of how they are obtained. The ballot box has often rewarded them for having a surplus budget even while voters whinged about this and that required to deliver it, even ‘excess profits’ from government businesses.

Need is not always enough, even when desperately needed to sway the electorate when they are wilfully focused on a bigger picture, like The Surplus.

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I believe that there is zero chance that they will sell them off.

Not only would they miss the ongoing profits, but the ETU would not allow it to happen.

When there was speculation that Campbell Newman’s LNP Government was going to try, the ETU went ballistic.

There are still remnants ot the stickers that they ETU plastered all over town displaying “Not 4 Sale. Not Now. Not Ever”.

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Put that one in a time capsule for your great grandchildren. When there is a will and a quick dollar for the treasury to be had there will eventually be a way.

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Going off topic guys arguing about government policies about privatising.
So when is a monopoly good, desirable even, and when is it not good?

If a monopoly is good, bad or indifferent is it all about the environment it is operating in?

Doesn’t government policy permit, regulate, not regulate, or create monopolies?

For whom might be the other half of the proposition.

When is an industry with multiple like minded businesses as good as a monopoly might be a useful extension of thought?

It’s all down to good Government, transparency of relationships and dealings.

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The Big 4 Banks?

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