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Power imbalance

There are risks when companies get too big. 

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Last updated: 02 October 2023

In Australia, markets for common goods and services like groceries, banking, telecommunications and air travel tend to be dominated by a small number of firms. 

It's partly about nostalgia – families may remain loyal to supermarkets or banks across generations. Some large firms, such as the Commonwealth Bank, Telstra and Qantas, also benefit from large customer bases developed when they were publicly owned. 

However, customers' trust in these institutions is not guaranteed. When the major banks allowed large-scale financial advice scandals to occur under their watch, the community anger was palpable, ultimately leading to a royal commission. 

And when the major supermarkets faced concerns about how they were dealing with suppliers such as dairy farmers, community concerns led to a mandatory code of conduct for the grocery industry. 

More recently, Qantas's failure to maintain quality customer service, along with its mishandling of flight credits, has seen its trust ratings tank in repeated surveys. 

The puzzling thing is that despite these scandals, major businesses tend to hang on to their power. Even as the big four banks battled through successive financial advice scandals around the time of the global financial crisis, their market share grew. 

The puzzling thing is that despite these scandals, major businesses tend to hang on to their power

This is partly because significant market power is a tricky force for governments to take on. Large businesses have enormous pools of data on their customers. They can use this data to tailor efforts to keep their customers. This is particularly valuable to businesses as they extend their range of products and services – as we've seen with the move by major supermarkets' into insurance and telecommunications. 

Increasingly, however, experts are asking whether our laws do enough to protect consumers. For example, firms aren't required to notify the ACCC when planning to merge, unlike in other major economies. And if a firm has built up significant power over time, there's very little that the ACCC can do. To address this problem, former ACCC chair Professor Allan Fels has gone as far as saying the courts should have the power to order firms to downsize when they have too much power. 

In the midst of this debate, the federal government has ordered a review of competition law, with a particular focus on addressing cost-of-living pressures. Former ACCC chair Rod Sims, who's been a vocal critic of our current laws, is a member of the expert panel overseeing the review. This will be a great opportunity to think about what sort of economy we want to have and how our laws need to change so that we can all benefit from more choice and more competitive prices in the future. 

PS: I'll soon be leaving CHOICE. I look forward to sharing some reflections in my final editorial next month!

Stock images: Getty, unless otherwise stated.