Part 5 of the Competition and Inflation Series
This series began with a simple question: Did corporate greed cause Australia’s recent inflation surge?
After examining the economic research, the competition debate, and the financial statements of 12 major Australian companies, the evidence points to a more nuanced conclusion.
Inflation was not caused by a single factor.
Global supply disruptions, energy shocks, labour shortages, changing consumer demand and rising inflation expectations all played important roles. The causes of and responses to today’s inflation, Statement on Monetary Policy – November 2026.
Yet the series also found something important:
- Supermarkets increased operating margins modestly.
- Banks benefited from higher interest rates and improved returns on equity.
- Insurers experienced significant profitability improvements.
- Energy companies enjoyed extraordinary gains from global commodity markets.
The common theme was not greed.
It was pricing power.
That leaves one final question: Can stronger competition help reduce inflationary pressures in the future?
The answer is yes, but probably not in the way many people expect.
Competition Cannot Prevent Every Inflation Shock
It is important to recognise the limits of competition policy.
No amount of domestic competition reform could have prevented:
- Pandemic-related supply chain disruptions.
- Global shipping bottlenecks.
- Energy market disruptions following Russia’s invasion of Ukraine.
- International commodity price shocks.
These events affected economies around the world simultaneously.
Competition policy cannot stop an oil price shock originating overseas.
Nor can it prevent droughts, floods or geopolitical events from affecting prices.
What competition can do is influence how those shocks spread through the economy after they arrive.
The Amplification Problem
Throughout this series, a recurring theme has emerged from the academic literature.
Supply shocks may initiate inflation.
Market power may help amplify it.
Research by Isabella M. Weber and Evan Wasner argues that firms operating in concentrated markets may find it easier to raise prices during periods of economic disruption.
Research by Viral V. Acharya and co-authors suggests inflation can become more widespread when higher inflation expectations reduce consumers’ sensitivity to price increases.
Similarly, Paul Scanlon‘s work suggests inflation itself can reduce the visibility of individual price changes, creating opportunities for firms to increase mark-ups.
None of these theories require businesses to become greedier.
They require only that businesses possess sufficient market power to act when opportunities arise.
Why Competition Matters
The strongest argument for competition is not actually inflation.
It is productivity.
Over long periods of time, living standards depend largely on productivity growth.
A more productive economy can:
- Produce more goods and services.
- Support higher wages.
- Improve living standards.
- Generate stronger economic growth.
Competition supports productivity by forcing firms to innovate, improve efficiency and invest in better products and services.
Without competitive pressure, businesses may become less dynamic.
Research by Jonathan Hambur and co-authors suggests declining competition can reduce productivity, contribute to resource misallocation and lower economic output.
The Productivity Commission has also repeatedly highlighted weak productivity growth as an important challenge for Australia.
This means competition policy is not merely about today’s prices.
It is also about tomorrow’s prosperity.
What Is Australia Doing About Competition?
Competition policy has moved back onto the national agenda.
The Australian Government’s Treasury Competition Review was established to examine whether Australia’s competition framework remains fit for purpose in a changing economy.
The review reflects growing concern about:
- Market concentration.
- Barriers to entry.
- Consumer switching costs.
- Digital platform dominance.
- Productivity performance.
At the same time, the Australian Competition and Consumer Commission has increased scrutiny of concentrated industries, particularly supermarkets and mergers that may further reduce competition.
The objective is not to punish successful businesses.
Instead, the goal is to ensure markets remain contestable and open to new competitors.
What Reforms Could Help?
There is no single policy solution.
However, economists and policymakers frequently discuss several approaches.
Reducing Barriers to Entry
New competitors create pressure on incumbents.
In sectors such as supermarkets, banking and insurance, barriers can include:
- Scale advantages.
- Distribution networks.
- Brand recognition.
- Regulatory complexity.
Reducing unnecessary barriers may encourage greater rivalry and consumer choice.
Improving Consumer Switching
Competition weakens when consumers rarely change providers.
This issue is particularly relevant in:
- Banking.
- Insurance.
- Telecommunications.
- Energy retailing.
If consumers can switch more easily, firms face stronger incentives to compete on price and service.
Stronger Merger Oversight
Mergers are not inherently harmful.
Many create efficiencies and benefits.
But mergers that substantially reduce competition may increase pricing power over time.
This is one reason merger reform has become a major focus of competition policy.
Better Market Transparency
Consumers make better decisions when pricing is easier to understand.
More transparent pricing can strengthen competitive pressure by helping consumers compare alternatives more effectively.
What Competition Cannot Do
Competition is not a cure-all.
Even highly competitive markets can experience inflation when:
- Input costs rise sharply.
- Energy prices surge.
- Supply chains fail.
- Labour shortages emerge.
Competition influences how markets respond to shocks.
It does not eliminate the shocks themselves.
This distinction is important because it helps avoid unrealistic expectations about what competition policy can achieve.
Lessons From the Data
The financial statement analysis in this series offers a useful lesson.
Different industries experienced the inflation period very differently:
| Sector | Outcome |
| Energy | Exceptional profit and revenue growth |
| Insurance | Strong profitability recovery |
| Banking | Moderate profitability improvement |
| Supermarkets | Modest margin expansion |
This variation suggests that inflation interacted differently with different market structures.
- Some industries possessed more pricing power.
- Some benefited from external shocks.
- Some were constrained by competition.
A single explanation does not fit every sector.
The Real Lesson
The greedflation debate often asks the wrong question.
It asks: Are companies greedy?
Businesses seek profits in every economic environment.
The more useful question is: How much freedom do firms have to exercise pricing power?
That question shifts attention from motives to market structure.
Competition policy cannot control the weather, stop wars or eliminate supply shocks.
But it can help determine whether firms can amplify those shocks once they occur.
That is why competition matters.
Conclusion
The evidence reviewed throughout this series suggests that competition is not a substitute for sound monetary policy, resilient supply chains or stable global markets.
But competition remains an important economic safeguard.
Strong competition can:
- Limit pricing power.
- Encourage innovation.
- Improve productivity.
- Support higher living standards.
- Reduce the risk that economic shocks become amplified through concentrated market structures.
Australia’s recent inflation episode was not simply a story about greed.
Nor was it purely a story about supply shocks.
It was a reminder that inflation, competition and market power are deeply connected.
Understanding those connections is essential if policymakers hope to build a more productive, resilient and prosperous economy.
Series Summary
- Greedflation: Myth, Reality, or Something In Between?
- Australia’s Competition Problem: Too Much Power in Too Few Hands?
- The Profit Test: Which Australian Companies Actually Expanded Margins?
- Pricing Power in Practice: Supermarkets, Banks and Insurers
- Can More Competition Reduce Inflation?
Taken together, the evidence suggests that inflation may begin with shocks, but competition often determines how far those shocks travel.
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