Is competition a myth?

Rod Sims
Australian Economic Forum
23 September 2011, Sydney

From the introduction

'In my view effective competition is the key driver of both productivity and innovation, and therefore prosperity. With low levels of Australian productivity currently under the spotlight the status of competition and competition policy in Australia should be near the top of the public agenda.

... competition policy is more than the traditional anti trust issues ... Competition policy is also about microeconomic reform that takes competition into new areas and which can include the appropriate regulation of monopolies where competition is not possible for one reason or another.

Today I will answer the question posed by making three observations.

Firstly, competition is not a myth in the sense that Australia has achieved a great deal since 1974 ...

Second, while much has been achieved, more needs to be done. My friend Fred Hilmer, when he was asked to speak at a recent ACCC regulatory conference, suggested the recent poor Australian productivity performance might be linked to the fact that we have moved our focus away from the role of competition in delivering efficient outcomes. I agree with his analysis.

Third, where competition is clearly a myth, especially in the areas of infrastructure provision where there are monopoly providers, economic regulation is the complement to competition. Economic regulation can, of course, only be a second best solution to an effectively functioning marketplace. However, a natural monopoly providing essential services is going to provide greater benefit to consumers, and the economy as a whole, under a transparent and carefully specified regulatory regime than it will if left to its own devices to preside over a market of one seller and many individual buyers.

...'

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