Service Oligopolies and Australia's Economy-Wide Performance

Abstract

Australia's services industries now contribute almost four-fifths of gross domestic product. The microeconomic reforms of the 1990s left behind numerous regulated private service oligopolies that contribute one-quarter. Using an economy-wide modelling approach that represents service oligopoly behaviour explicitly, the extent of sectoral interactions and the potential economy-wide gains from price cap regulation are assessed. Non-linear interaction between oligopoly industries is shown to support economy-wide over sectoral analysis. Moreover, the results from the economy-wide modelling suggest that the cost of unabated oligopoly distortions would amount to one-third of Australia's gross domestic product. Show more