05:07

An economics course will eventually teach its students about the difference between a hypothetical “perfectly competitive” market with multiple players and price competition, and an “oligopolistic market” with a few large players and little price competition.

Australia’s banking system is an oligopoly, according to the Productivity Commission.



One of the classic strategic problems faced by firms in an oligopoly is the “first mover problem”. This refers to the logic they’ll employ to defend their behaviour.



For example, if oligopolistic firms are all ripping off customers with a particular product, none of them will want to be the first to stop doing so because they’ll lose market share and profits to their less scrupulous competitors.



We heard CBA’s chief executive, Matt Comyn, talk about the first mover problem yesterday.



And we’ve heard about it again today, this time from Brian Hartzer.



Check this exchange between Hartzer and Hodge:



Hodge: “The reason that Westpac didn’t want to simply move itself to give up flex commissions was because it didn’t want to be the first mover in the industry?”

Hartzer: “We didn’t think that making – being the first mover would actually achieve the elimination of flex commissions, because we didn’t think the others would change, if they weren’t required to.

Hodge: “But it would mean that you no longer would be paying flex commissions?

Hartzer: “Yes – and we felt that that would mean we were no longer effectively in the business.”



Hodge: “And it would mean that you would no longer be incentivising dealers to have a conflict of interest between themselves and the customer?”

Hartzer: “Yes.”

