Industry Structure and Welfare Losses in Australian Manufacturing Industries

Abstract

In a recent paper, Hefford and Round [13] presented estimates of welfare losses for 153 Australian manufacturing industries, over the period 1968-69 to 1973-74. These losses averaged $35.6 million per annum, about one tenth of one percent of average Gross Domestic Product at factor cost. Over 59 percent of the total loss came from ten industries, and nearly 80 percent of the total loss originated in 25 industries, suggesting that a large welfare gain could be achieved by the reduction of market power in just a few industries. The aim of this paper is to examine whether welfare losses are related to several aspects of industry structure, as two of the major Australian regulatory authorities generally have acted in accordance with some largely untested (in Australia) hypotheses about the relationship between certain structural variables, market power and economic welfare. For example, in considering applications by firms for permission to merge, and when considering the likely effects of restrictive practices on the extent of competition in a market, the Trade Practices Commission (Australia's antitrust authority) has stated clearly (see, for example, Walker [22, 161]) that higher levels of concentration