The Structure of Australia’s Banking Industry

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The structure of Australia’s banking industry is similar to that of an oligopoly, which poses the threat of minimising competition. The structure, performance and conduct of banks are important as they ensure that they act competitively, however in Australia the market is dominated by four major banks threatening competition. The structure in the Australian banking industry is fairly oligopolistic, decreasing the amount of competition evident in the market. Performance of the dominating banks has shown an increase in the profitability and return of assets compared to international banks in a freer market. Through minimal competition, the conduct of the industry has slightly diminished with an increase in fees, and inquiries into possible collusion. The structure, performance and conduct paradigm of the Australian banking industry threatens the competition evident in the market.

Within an industry that has a highly concentrated structure, the conduct of the involved parties tends to initiate anti-competitive behaviours, which improves the firm performance. Competition can be measured within an industry by using various methods, the first is the concentration ratio which is the percentage of the market share owned by the biggest companies within an industry (Young, P 2014). The second measurement tool is the Herfindahl-Hirschman Index (HHI), which calculates the percentage of market shares held by all firms within an industry by square rooting the market share (Bikker, J & Haaf, K 2002). Banking structure is also able to be determined through market segmentation, product differentiation, barriers and diversification. Of the 54 banks in the Australian banking industry, the market is dominated by just four, which occupy 76 per cent ...

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... disallowing smaller less substantial firms the chance to compete fairly in the industry.

Australia’s banking industry is fairly oligopolistic, which has minimised the threat of competition from smaller firms. The structure of the four dominating banks in the industry has seen an introduction of anti-competitive behaviours which has targeted smaller firms. This in return has seen the performance of the banks have an increase in profits and return in assets, pushing Australia to have four out of eight of the most profitable banks in the world. The performance of the banks, has seen the conduct become less competitive with the introduction of multiple fees and charges to consumers, due to the uncompetitive markets. Therefore, the banking industry in Australia has four very dominant firms with definite control, limiting the competition in the market.
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