‘Data limitations’: Why a probe into competition and prices called for better research

Australia lacks key insights into some of the most important economic issues facing families, a committee has found.

Australia lacks key insights into some of the most important economic issues facing families, a committee has found. Photo: Getty

Australians could soon learn more about how corporate concentration is pushing up the prices they pay at the checkout and what’s behind stagnating living standards after a parliamentary report backed a huge boost in economic research.

A tense political debate has been raging lately over lacklustre competition and high consumer prices amid a monumental inflation squeeze that has put families under pressure.

It has sparked a blame game about whether corporate profits or poor productivity have worsened living costs, with experts hurling competing evidence across the political divide.

But this week a Parliamentary Committee tasked with probing the state of competition and its effect on prices reached a remarkable conclusion – we might know less than many think.

In fact, many of the 44 recommendations made by the inquiry this week weren’t targeted at reining in corporate profits or boosting productivity directly, but instead getting better data about those issues.

Even questions key to the living standards of Australians and the prices consumers pay for goods and services are shrouded in what the committee found were “data limitations”, with much of the evidence presented stemming from studies of economies overseas like the US.

“A meticulous examination of data related to market competition in Australia is needed to comprehend the decline in national productivity growth,” the committee concluded.

“Such a comprehensive analysis will unveil insights into the complexities, challenges, and ramifications associated with the low productivity of recent years.”

The committee called for a big boost to economic research, including getting the ABS to publish market share figures for large corporations and pushing government to “better understand” how changing productivity and competition affects prices and profits.

Australians may also see “more detailed and higher quality” information about corporate profits under another recommendation for a government agency to invest in that analysis.

It’s all music to the ears of economists like UNSW Professor Richard Holden, who said that economic questions about productivity, competition and prices can be difficult to analyse.

Australia has a “fairly unusual” economy that makes comparisons difficult with other nations, he said, underlining the value of local analysis to unpick prices and productivity.

“It’s clear we need to take a fairly nuanced view of these sorts of issues,” Holden explained.

“Just because there are [companies with] high market shares doesn’t mean firms necessarily have a lot of pricing power – it may be indicative of that.

“We really need to get into the micro data of thinking about how scale and market share translates into pricing power.”

That term “micro data” came up often in the parliamentary committee’s 280-page report, and for good reason, because the availability of information about how companies make decisions at a firm-by-firm level is key to how competition (or a lack thereof) shifts prices.

The good news is that such data is becoming much more widely available, offering an opportunity for Australia to invest in understanding questions that affect households.

That includes how much the effects of market concentration actually cost consumers at the checkout, and what falling economic dynamism might do to living standards over decades.

Veteran economist Saul Eslake said better data would be a positive, and that “all else equal” would lead to better policy decisions and outcomes around these important questions.

Such analysis could build on areas that have already begun to be studied, including rates of businesses starting up and closing down, and lower rates of workers switching their jobs.

Eslake argues both of these factors are evidence of a decline in Australia’s economic dynamism, which is one of the reasons that productivity growth has been in decline.

“I don’t dispute that one of the contributors to those developments has been inadequate enforcement of competition laws, and emerging gaps in those laws themselves, as the structure of the economy has changed,” he said.

“As an economist I think, almost as an article of faith, that more competition is better than less competition – as long as it doesn’t end in destructive competition.”

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