- Economic dynamism, competition, and productivity
The opportunity for higher living standards
2.1To set the context for this inquiry, it is important to highlight the Committee’s concerns about the persistent decline in Australia’s productivity performance over the past two generations, and the troubling implications for the living standards of everyday Australians. Accordingly, the Committee considers boosting national productivity growth to be a key economic policy goal.
2.2It is in this light that the Committee has sought ideas to bolster Australia’s economic dynamism and to improve competition settings, which the Committee views as key components of the solution to restoring productivity to higher levels.
Productivity and why it matters
What is productivity?
2.3Productivity measures how efficiently firms, organisations, industry, and the economy as a whole convert inputs—such as labour, capital and raw materials—into output. Productivity is commonly defined as a ratio between the output volume and the volume of inputs. New products or improved products are also captured by productivity measures. Productivity does not reflect the value we put on what is produced; it only measures how efficiently we use resources.
2.4There are different measures of productivity and the choice between them depends either on the purpose of the productivity measurement and/or data availability. One of the most widely used measures of productivity is Gross Domestic Product (GDP) per hour worked. This measure captures the use of labour inputs better than just output per employee.
2.5To take account of the role of capital inputs, an appropriate measure is the flow of productive services that can be drawn from the cumulative stock of past investments (such as machinery and equipment).
2.6After computing the contributions of labour and capital to output, the so-called multi-factor productivity (MFP) can be derived. It measures the residual growth that cannot be explained by the rate of change in the services of labour, capital and intermediate investments, and is often interpreted as the contribution to economic growth made by factors such as technical and organisational innovation.
2.7Productivity growth is affected by a number of factors, including innovation and technological improvements, economies of scale and scope, workforce skills, management practices, competitive pressures and the stage of the business cycle.
2.8While, at the macroeconomic level, productivity is important to economic growth, it also makes a real difference to individual lives. According to the Productivity Commission, productivity has been the key driver of long-term improvements in living standards. The average Australian worker produces about as much in one hour today as it took a full day’s work to produce at Federation in 1901.
2.9Additionally, the Productivity Commission told the Committee that higher productivity tends to result in higher wages and reduced working hours.
2.10Productivity also contributes to positive social outcomes, for example in the care economy. As a key driver of revenue, productivity improves the nation’s capacity to finance social investments and, in the words of the e61 Institute, to respond to the society-shaping megatrends of the future, such as ‘decarbonisation, digitisation or globalisation’.
2.11Treasury advised that its policy work was informed by a ‘broad view of productivity, defined to include both market and non-market goods and services, which many Australians increasingly depend upon’.
2.12Additionally, productivity can assist in managing inflation—the Reserve Bank of Australia has told the Committee in a separate inquiry that weak productivity growth combined with higher aggregate demand adds to upward pressure on prices.
International examples of the transformative power of productivity
2.13Ample historical precedents demonstrate the transformative power of productivity in shaping national destinies through the efficient allocation of resources and innovation. The post-war economic resurgence of Japan is one. More recently, the remarkable economic transformation of China over the past thirty years has seen half its population escape poverty.
2.14Perhaps the most striking example of the effect of productivity growth is the Korean Peninsula. Emerging from their intense conflict of the early 1950s, both North and South Korea had per capita GDP levels amongst the lowest in the world. Over the following decades, South Korea experienced continuous high productivity growth to the extent that today, its citizens enjoy GDP per capita levels comparable to most OECD countries. By contrast, North Korea’s economic growth stagnated and today its people remain among the world’s most impoverished.
Australia’s declining productivity performance
2.15Disturbingly, productivity growth rates in Australia currently sit at 60-year lows – at 1.1 per cent over the 2010–2020 decade compared to the 60 year average of 1.8 per cent (since 1960)—as highlighted by the Productivity Commission in Figure 2.1. This is also particularly concerning in light of Australia’s rising dependency ratio which, as Australia’s population ages, will increasingly see relatively fewer workers support greater numbers of retirees.
Figure 2.1Average labour productivity by 10- and 60- year periods
Source: Productivity Commission, ‘5-Year Productivity Inquiry: Volume 1 - Advancing Prosperity’, 17 March 2023, p. 2.
2.16Australia’s productivity slowdown has been broad-based—with other advanced economies experiencing lower 10- and 20-year productivity growth compared to their 30-year average.
2.17The ramifications of this productivity slowdown are far-reaching.
2.18First, the impact on national income to date has already been stark. According to the Productivity Commission, if Australia had sustained its 60-year average in productivity growth, national income per capita in 2020 would have been bolstered by an additional $4,600 (a 6 per cent increase).
2.19Looking ahead, the forecasts paint a bleak picture. If the economy persists on its current trajectory, Australians face a future where incomes would fall by close to 40 per cent, relative to what they would otherwise have been. Put another way, lifting productivity growth rates over the next 40 years from current historic lows back to the long-term average of 1.8 per cent would see Australians in 2060 better off by approximately $23,000 per capita each year, and working significantly reduced hours, according to Productivity Commission estimates (see Figure 2.2).
Figure 2.2The projected impact of slower productivity growth on income and leisure
Source: Productivity Commission, ‘5-Year Productivity Inquiry: Volume 2 - Keys to Growth’, 17 March 2023, p. 29.
Productivity benefits of collaborative workplaces and good jobs
2.20Recent workplace relations reforms have sought to create better higher-wage jobs and more collaborative workplaces. This is based on theoretical and empirical research indicating that more collaborative workplaces yield benefits within workplaces and productivity gains across the economy.
2.21The OECD argues that co-ordination in wage bargaining and employee voice, such as through unions, is a key ingredient for good labour market performance including higher employment, inclusive labour markets and lower inequality. More collaborative workplaces can also contribute to ‘lower turnover and longer tenure [which] can reduce hiring and training costs and increase productivity’.
2.22We know that treating workers fairly isn’t mutually exclusive with a strong economy, and good business performance. Countries with higher proportions of workers covered by agreements with higher wages are also high productivity countries.
2.23Professor Alex Bryson at the University College of London found that employee voice helps improve worker engagement, helping companies to innovate and adopt more productive practices.
2.24Workers who are more satisfied are less likely to leave their jobs, which reduces employer costs on recruitment and re-training. This is important since firms find more innovative ideas from their own workers than from any other source.
2.25Some organisations claimed during the inquiry that recent workplace relations reforms would be bad for overall productivity. However, it is not clear that underpaying workers or requiring workers to be always contactable outside work hours is would enhance productivity. In fact, in some contexts, the ‘flexibility’ that some employers demand can undermine productivity. Less worker protections and rights can lead to employers intensifying work hours, paying workers less and stifling employee innovation. Unhappy, burnt-out workers increase staff turnover and costs to business in recruitment and retraining. Dissatisfied workers exhibit lower morale and effort, which lowers productivity.
2.26The Centre for Future Workfound that 71 per cent of workers surveyed worked outside their scheduled work hours often due to overwork or pressure from managers. This led to increased tiredness, stress or anxiety for around one-third of workers, disrupted personal lives for more than one-quarter, and lowered job motivation and satisfaction for around one-fifth. The Select Committee on Work and Care heard evidence in relation to the negative consequences of working outside scheduled hours for productivity, turnover, and mental and physical health.
2.27In an environment where businesses are focusing less on undercutting each other on wages and conditions to save costs, the emphasis will be more on working smarter, investing in new skills and new technologies. That can end up being a key driver of productivity.
Productivity is also driven more by non-workplace relations factors—many that businesses control
2.28Research shows that direct links between workplace relations policies and productivity growth is weak. However, if anything, productivity is lower in more individualised systems, rather than more worker-protective systems.
2.29Since the mid-2000s, productivity growth has slowed in Australia and other advanced economies. This is due to several factors, including reduced dynamism and competition among business (e.g. as manifested by higher rates of market concentration and less firm entry/exit), slower investment in and uptake of technological innovation, and shifts to a services industry economic base with a higher proportional labour input.
2.30Productivity is also driven more by factors controlled by businesses, such as investment in new machines and technologies, research and development, staff skills, and management capabilities. Tellingly, in the two years to mid-2021, 60 per cent of Australian businesses did not introduce a new process and almost 80 per cent did not introduce any significant new good or service.
Competition and economic dynamism
2.31Competition and economic dynamism are interrelated concepts and are both pivotal drivers of productivity. Competition and economic dynamism can encourage positive economic outcomes such as a higher rate of productivity growth—leading to higher wages and standards of living, new products and services and sustainability of government—as well as better consumer outcomes such as lower prices and better levels of service.
What is competition?
2.32Competition refers to a process of rivalry in a market where businesses seek to attract consumers for their own objectives, such as an increase in profit or to gain market share. This rivalry may occur in the form of price, service, efficiency, quality, or a combination of factors that consumers may value.
2.33In economics, competition refers to the number of firms in an industry and how they interact in seeking market share. In competitive environments, companies strive to differentiate themselves from rivals by offering superior products and services.
2.34In the view of the Productivity Commission, while competition is not an end in itself, it provides consumers with choice, incentivises innovation, and assists society to derive the greatest value from its scarce resources.
2.35Building on this, Treasury told the Committee that competition rewarded merit over special interests by supporting ‘new and innovative business practices over incumbents’ and by forcing ‘businesses to pass productivity gains forward to consumers as lower prices, or back as higher payments to attract the best workers or suppliers’.
2.36The Australian Competition and Consumer Commission (ACCC) told the Committee that in the absence of sufficient competition, ‘we get the problem of reduction of output, raising of prices, lower product quality and, at times, just lower choice’ as well as ‘a diminishing of convenience and a transfer [away] of wealth from consumers and smaller suppliers’.
2.37A key factor when assessing competition are the barriers to entry of a particular market or sector. Barriers can include high start-up costs, regulatory hurdles, or any other obstacles which prevent companies from easily entering a market. Barriers to entry protect incumbent firms from ‘contestability’—the threat of entry by new firms.
2.38Three key metrics are often used to assess the level of competition in an industry:
- Market share of the largest firms (concentration),
- Price mark-ups (the gap between price and marginal cost); and
- Firm entry/exit.
What is economic dynamism?
2.39There is no universally agreed definition of economic dynamism. It usually refers to the levels of competition, innovation, and creativity in an economy. A dynamic economy can quickly adapt to changes in demand and supply by reallocating resources such as labour and capital. The regulatory environment also plays a crucial role; excessive bureaucracy hinders dynamism while productivity-boosting regulations foster dynamism. A dynamic economy creates more jobs and helps power wage rises for workers.
2.40For the purposes of this report, the Committee will use a broad definition of dynamism as explained by the Productivity Commission:
Economic dynamism is concerned with the efficient adaptation to new demand and supply trends and re-organisation of resources (labour and capital) across the economy, supported by the creation of new knowledge and its rapid diffusion. The concept of dynamism recognises that new technologies are not seamlessly adopted throughout an economy, but will often require people to move and learn, investments in physical and intangible capital, new managerial models, and the death and emergence of businesses and business models. It gives prominence to the actions and capabilities of all firms and employees — not just the few technological leaders in an economy.
Innovation
2.41An important aspect of economic dynamism is the way the economy allows for or encourages innovation and a culture of risk taking. Innovation is often a vital mechanism through which new market entrants or disruptors can respond to incumbents’ exercise of market power. This, in turn, compels incumbents to improve the quality or pricing of their products and services.
2.42In the telecommunications sector, for example, when new operators introduced more affordable mobile plans with larger data allowances, established operators had to re-evaluate their pricing strategies and resource allocation to ensure their competitiveness. They invested in infrastructure to enhance network coverage and speed, streamlined operations to cut costs, and were more innovative in their service offerings.
2.43The creation of online platforms compelled traditional retailers to adapt to changing consumer preferences. This involved investing in their own online platforms, integrating technology into online experiences, and leveraging data analytics to gain a deeper understanding of consumer needs.
2.44In the financial services sector, many Australians and Australian businesses are by-passing the traditional payments and value storage systems offered by banks and major financial institutions. They are turning instead to digital payment products offered by emerging fintech companies, such as apps to enable international payment transfers or real-time account-to-account payments. These alternative payment products are a striking example of the efficiency and convenience for consumers that innovation can bring.
2.45According to the Australian Banking Association:
- More than 15.3 million cards were registered to mobile wallets in 2022, up from just over two million in 2018—a 760 per cent increase.
- 98.9 per cent of banking interactions take place via apps or online.
Regulation
2.46Another consideration is regulation, which can either enhance or reduce economic dynamism, depending on how it is applied. Proactive regulation that improves transparency in a market, for example, can reduce the asymmetric information advantage of incumbents relative to challenger firms or consumers seeking to switch to an alternative (asymmetric information occurs whenone party to a transaction has more, or superior, information comparedto another). On the other hand, regulation is potentially restrictive in four ways: by limiting the number or types of businesses in a market, by limiting the ability of businesses to compete, by reducing the incentive of businesses to compete, or by limiting the choices and information available to consumers.
2.47The Productivity Commission signalled the importance of the regulation of intellectual property in preserving innovation. Though patents arguably stifle competition, there is ‘an essential aspect to having at least a limited capacity to earn profits on your innovation. If all innovations end up having their benefits taken away immediately by any rivals, the incentives for innovation decline’.
2.48The financial technology industry outlined the regulatory challenges in its sector.
2.49On the one hand, regulators need to ensure appropriate protections regarding the security of customer data and its disclosure, and prudential measures around capital adequacy and liquidity to protect customer funds.
2.50On the other hand, it is critical that regulatory frameworks do not stifle innovation, and that they remain flexible enough to keep pace with the rapid evolution of technology and with overseas models. Block, the fintech company, for example, advocated for ‘outcomes-focused’ regulation:
So it’s having regulation that’s not focused on the process but is actually focused on the outcome that we want to achieve and having flexibility about how we get to that outcome so that you can have innovation around products. Otherwise, if we're regulating processes and creating compliance checklists, products start to look very similar and you don't get competition around product innovation.
Links between competition, dynamism, and productivity growth
2.51As noted earlier, there are clear links between competition and economic dynamism. The linkages can work both ways. More competition can boost dynamism as firms innovate to outdo each other.
2.52It is widely accepted by economists that economic dynamism can boost competitive tension and productivity growth—although sector-specific factors also play a significant role. The Productivity Commission highlighted the ‘dynamic benefit’ of competition, that the disruption caused by a new entrant to a market or by a new business model ‘ideally’ favours firms that are ‘…better at satisfying consumer wants’, a view echoed by the ACCC.
2.53An increase in the level of competition often leads to the emergence of new products and services, a phenomenon driven by the desire of firms to differentiate themselves from competitors and attract consumers.
2.54Through the process of ‘creative destruction’, new firms enter the market and introduce innovative products and ideas in an attempt to contest profits and capture market share.
2.55The openness of an economy (to international trade, to international investment and capital, to foreign labour etc) has implications for competition and dynamism in many sectors. Treasury pointed out that the ‘threat of import’, for example, can be a significant factor in incentivising competitive behaviour, even in a highly concentrated industry.
2.56More intense competition between companies generally leads to higher quality products and services. To facilitate a competitive environment, it is essential that consumers can easily switch to using other products and services. This could be through mechanisms such as comparison websites, reducing complexity by standardising definitions and harmonising information across sectors (e.g. adopting uniform definitions across insurance policies, ensuring consistent nutritional information on food packaging, or implementing universally recognised energy efficiency ratings) and proactive regulation by requiring, for example, financial institutions to inform customers about the potential benefits of switching (discussed further in Chapter 6).
2.57Competition also serves as a crucial disciplining mechanism with several positive outcomes for dynamism. It discourages rent-seeking behaviours, with companies instead encouraged to adopt strategies that enhance productivity to gain a competitive advantage. And competition spurs enhancements at the management level, with executives incentivised to eliminate inefficiencies in the production chain to ensure resources are utilised to their best potential.
2.58Ultimately, boosting competition and economic dynamism are key strategies for boosting long-term productivity growth.
2.59This was demonstrated by evidence from the e61 Institute regarding ‘allocative efficiency’, a situation where higher levels of competition and economic dynamism result in greater market entry by innovative firms, increased levels of employment growth in high productivity firms, and higher rates of exit in low productivity firms:
…new firms bring new ideas, intensify competition and encourage incumbents to invest and adopt new technologies. More generally, this promotes a competitive environment that fosters the reallocation of scarce resources to most productive uses.
The impact of artificial intelligence
2.60Witnesses across the board viewed artificial intelligence (AI) as providing both significant opportunities for, and threats to, economic dynamism and competition. Witnesses also voiced concerns about whether Australia was properly positioned to take advantage of the technology. Either way, AI cannot be ignored, so the challenge for Australian firms is to harness it in a safe way, enabled by effective regulation.
2.61Representing the technology sector, the Tech Council of Australia told the Committee that it’s ‘never been more important to…remove barriers to tech adoption given the important role that it plays in driving productivity, dynamism and competition’. The Council emphasised the vital role of ‘start-ups and scale-ups’ in ‘generating new sources of competition and innovation, including in new tech verticals such as AI, quantum and robotics’.
2.62The Tech Council and the Australian Government have a shared goal of employing 1.2 million tech workers by 2030, which will require an additional 653,000 individuals to join the workforce in the next seven years—an additional 186,000 tech workers above business-as-usual projections.
2.63Banks are cognisant of the potential productivity dividend from using AI.
2.64National Australia Bank (NAB) commented that data interrogation provided new behavioural insights into customers and improved predictive capability in assessing creditworthiness.
2.65Both Heritage Bank and Bendigo & Adelaide Bank told the Committee that AI could reduce operating costs.
2.66Westpac highlighted the opportunities for small businesses to leverage AI to grow, provided they could master the technology.
2.67However, firms were cautious about the risks of using AI and the governance structures required to oversee AI.
2.68NAB noted the critical importance of protecting customer data. It also stressed the work it was doing to ensure the technology could be used while preserving key principles such as transparency and accountability.
It's really important that, when we build models and run models, we understand how those models work and how they arrive at decisions. So we have separate teams that actually review and challenge—or, what we call, validate—our models…
What models will help us do is give us some really strong insight, and that insight will continue to evolve with the better use of data and more access to data. But, fundamentally, we have to be responsible in the way we use that information and the way we use it in reaching our decisions. We can't abrogate all the decisions to models on their own, and we don't.
AI net effect on competition
2.69There remains no clear view about the fixed costs of managing and harnessing AI, its effects on market entry, and whether AI will result in a net positive or negative for competition. Several witnesses were particularly concerned over Australia’s capacity to be internationally competitive in the AI field.
2.70The Productivity Commission highlighted that Australia ranked poorly on data analytics and AI—‘fourth from the bottom of OECD countries’. The Commission noted that Australia was very good at producing data, less so at using it. It had heard from industry that the key reasons for this poor performance were low internet speeds, skills deficiencies, and an associated lack of diffusion of knowledge and take-up of AI across the small business sector.
2.71Echoing this concern, the Grattan Institute added that a significant impediment to AI adoption in Australia was ‘barriers around the quality and management of Australian firms’ and that improving the nation’s skilled migration settings could assist in tackling this.
2.72Google said that regarding accessing AI and the ability to use its products, there were low barriers to entry for firms in the Australian technology sector.
…we would say that, if you're looking at different industries in Australia and globally, the tech sector is one where all of the hallmarks and elements of a fiercely competitive sector are there…We see the emergence of AI and, each day, a number of different players emerging into that market. As I've said, there are low barriers to entry. There are low costs, relatively, for consumers and businesses to use our products.
2.73By contrast, Westpac said that the digital economy ‘tends to drive us towards a winner-takes-all type of position’ and that it was challenging for small businesses to ‘keep up in areas where technological scale is really important’.
2.74As AI becomes integrated into the production of goods and services it will become an important source of competitive advantage.
2.75As a factor of production, AI may exhibit some characteristics that reduce competition. Compared to other factors of production, such as human, physical and financial capital, AI may be less transferrable across firm boundaries. Traditionally, competition is fostered in industries when workers leave to start competing companies, or when new firms emerge in different geographies, or when investors seek to mimic a successful innovator.
2.76But AI is less transferrable across firms. It can’t be poached, like a good worker. It isn’t fungible like investment dollars. It isn’t necessarily limited by geographic boundaries. And AI, unlike other factors of production, is able to innovate on itself.
2.77AI may be less amenable to competition than traditional factors of production. As AI becomes a more important ingredient in production processes across the economy, it could entrench the power of incumbent firms.
2.78On the effects of AI on scale and the requirements for entering—or remaining in—the market, Bendigo & Adelaide Bank told the Committee that organisations need to recruit people with the requisite skills to implement and manage the ‘risk side’ of AI ‘because it can be a bigger cost in itself’.
2.79Shift Financial, a digital credit and payments platform provider, told the Committee that to be competitive it needed to be at the ‘cutting edge’ of AI, but that recruiting skilled labour was ‘relatively difficult’ and often needed to be sourced from overseas.
Regulating AI
2.80Witnesses held mixed views about a suitable regulatory approach to the swift development of AI and Australian industry’s preparedness for it.
2.81Microsoft told the Committee that government needed to partner with industry in developing regulation, and that the future regulatory path was likely to require a mix of experimentation and self-regulation. For these reasons it supported a ‘regulatory sandbox’ approach.
So there is risk in regulating what we know today because it will be out of date, if not tomorrow, then by next week. There is a way to look at it around adopting principles, self-regulation, co-regulation and steps along the path until we find out where that spot is…The biggest risk is that, if government feels that it has to come up with the solution on its own, that will probably not be workable. I think the sandbox idea makes sense, and we'd be supportive of that.
2.82Former Productivity Commission Chair Mr Peter Harris cautioned the Committee to treat with scepticism arguments for AI regulation put forward by those with an interest in raising barriers to market entry.
And I note that there's great capacity to exaggerate the impacts here. We hear that AI is going to be massively disruptive and therefore needs to be regulated. I note that most of the people who are calling for regulation are the incumbents who've managed to solve the problem, and you could argue that of course regulation then becomes a barrier to somebody else being able to replicate their service and compete with them. So, I'd always be a little more sceptical about claims that everything is massively disruptive.
2.83On related ethical matters—such as managing the risk of AI tools reinforcing existing human biases and thus leading to unfair outcomes in, for example, insurance underwriting—the Australian Prudential Regulatory Authority (APRA) advised that the financial industry was alert to such questions ‘…but it’s obviously going to be a rapidly evolving space’.
2.84In January 2024, the Government announced that it would take action to ensure AI is safe and responsible. In its interim response to the Safe and Responsible AI in Australia consultation, the Government said it was considering mandatory guardrails for AI development and deployment in high-risk settings, whether through changes to existing laws or the creation of new AI-specific laws.
The impact of inflation
2.85There was no clear evidence about the effect on competition of the higher inflationary environment that Australia has endured in recent times. However, several witnesses expressed the view that in certain circumstances a concentrated market would intensify the effects of (rather than be the primary cause of) inflation.
2.86Professors Flavio Menezes and John Quiggin pointed the Committee to their research, which shows that ‘to the extent that market power amplifies the inflationary impact of market power it doesn’t cause inflation but amplifies the price increase following a market shock’.
Our analysis shows that with standard models of competition; oligopolies, such as Cournot models; or competition in supply schedules, this is quite a robust result—that demand inflation will be amplified by market concentration.
2.87The ACCC told the Committee that given recent inflation had been caused by ‘a mix of real and nominal shocks’, it was difficult to assess its relationship with competition.
If shocks were purely nominal, then you might be able to say that firms with market power could find it easier to raise prices by more than costs, because of the camouflage provided by the high rate of general price increases, but if shocks are mainly real shocks, like supply chain disruptions or labour shortages in particular industries, then even firms that behave competitively or operate in competitive markets might raise their prices and markups to ration demand, at least until those shocks are resolved. So at a general level it might be hard to make a judgement on this question except in hindsight.
2.88Former ACCC chair Professor Rod Sims said that in a market with a small number of firms, each was watching the other and that ’when there’s an opportunity to increase prices in a way that is explainable, I think they are more likely to do that’. He caveated this by adding that he did not possess any quantifying data.
2.89In his February 2024 inquiry into price gouging and unfair pricing practices, another former ACCC Chair, Professor Allan Fels, noted the following:
Prices in Australia are often too high reflecting the many markets where there is less than fully effective competition.
Not only are many consumers overcharged continuously but ‘profit push’ pricing has added significantly to inflation in recent times.
…
This report concludes that business pricing has added significantly to inflation in recent times.
‘Profit push’ or ‘sellers inflation’ has occurred against a background of high corporate concentration and is reflected in the surge of corporate profits and the rise in the profit share of Gross Domestic Product. There is much support for the view that prices have added much to inflation. This is to be found in research from OECD, IMF, BIS, European Commission, European Central Bank, US Federal Reserve Bank, Bank of England and many think tanks globally and locally and many detailed research studies. Claims that the rise in profit share in Australia as explained by mining do not hold up. The profits share excluding mining has risen and energy and other prices associated with mining have been a very significant contributor to Australian inflation.
2.90The Productivity Commission, by contrast, firmly rejected the notion of greedflation’—that firms with market power were using inflation to mask unfair price mark-ups over costs to increase profits. For such firms, an inflationary environment did not provide new opportunities for ‘sustained exploitation of market power’, as they can already use that power at any time.
…the greedflation thesis seems to have been quickly overtaken by the facts. Australia's annual inflation rate appears to have peaked at 7.8 per cent and has now declined to six per cent. Company profits declined by 13.1 per cent in the June 2023 quarter and fell by 11.8 per cent over the year to June. Some might ask, 'If there is greedflation, why were firms apparently greedy up until recently but have now suddenly stopped being greedy?'