RDP 2025-05: How Costly are Mark-ups in Australia? The Effect of Declining Competition on Misallocation and Productivity 8. Conclusions

Over the past few decades we have seen productivity growth slow in Australia. This has profound implications for the welfare of the Australian people, and for fiscal and monetary policy. At the same time, there has been evidence that the degree of competition in the Australian economy has declined. Previous work has linked these two dynamics, but it has been hard to quantify the effects.

In this paper, we have begun to quantify these effects, by bringing Australian data to an existing frontier theoretical model. We have used this to quantify the extent to which declining competition has weighed on productivity by causing resources to be less effectively allocated across firms in the economy.

Our key finding is that, if we were we able to return to mid-2000s levels of competition, productivity would be 1–3 per cent higher as a result of better allocated resources. This shows that declining competition has been a significant drag on productivity, and therefore GDP and incomes. And this is before we consider other channels through which competition might affect productivity, such as incentives to adopt technologies and improve processes. Moreover, we show that the broader economic costs of declining competition are potentially much larger, though harder to precisely estimate.

These are important findings. They suggest that declining competition in the Australian economy can account for a significant portion of the slowdown in productivity growth, and therefore growth in incomes and living standards. That said, they do not give an indication of whether these costs will continue to grow from here, which is an important avenue for future work.

Moreover, they do not point to the ultimate source of the decline in competition in Australia. This could reflect a myriad of factors from regulatory burdens, to competition enforcement, to availability of finance, along with many others. Further work to understand the ultimate causes of declining competition and therefore productivity would be extremely valuable.