Dominant Australian companies in concentrated industries outperform those in industries where competition is more intense by six per cent, according to research by the Centre for International Finance and Regulation (CIFR).
Industry Concentration, Excess Returns and Innovation in Australia is the title of a forthcoming paper co-authored by Professor David Gallagher.
The paper was based on data covering 35 years and 25 major industry sectors.
However, the research is at odds with a comparable study which found US firms in concentrated industries with limited competitive pressure underperform by approximately four per cent per annum compared with those firms with greater competition, said CIFR.
Mr Gallagher and the co-authors of the Australian study, Dr Katja Ignatieva and Dr James McCulloch, said the contradiction between their research and the US study reflects the differences in market size and the degree of competition between the US and Australian industrial sectors.
This impacts the ability of companies in the two countries to “generate monopoly profits and invest in innovation”, he said.
Mr Gallagher said competition policy is critical to the national economy, however, since it is an “important driver in achieving the economic goals of productivity and efficiency, and serves as a catalyst for sustained economic growth and development, as well as innovation”.
“Competition in securities markets has been a contentious topic in Australia, and will be the focus of the next wave of CIFR research,” he said.
