How costly are mark ups in Australia - The effect of declining competition on misallocation and productivity

Key finding

If competition in Australia had stayed at its mid-2000s levels our economy would have been up to 3% more productive. That would have meant correspondingly higher GDP and incomes for Australians.

Why it matters

• On a number of measures, competition in Australia declined in the decade leading up to COVID-19.
• Less competition leads to less efficient use of resources across the economy, contributing to lower productivity and GDP outcomes over time.
• This flows through to smaller increases in real wages and living standards over time.

What we did

We used a benchmark economic model and Australian business microdata to examine how falling competition affects GDP and productivity.

What we found

• Productivity and GDP would be 1–3% higher if competition had not declined over this period, reflecting better allocation of resources across the economy.
• The economic gains of maintaining competition would have been even larger if the economy-wide impact of higher average mark-ups was factored in.