Monopolistic companies possess a power that is envied by every business person: the ability to set their prices above their costs of production. In a truly competitive market, consisting of many sellers selling a similar product, firms don't actually control their prices. They are ''price takers''. Prices are determined by the intersection of supply and demand, and because no one seller has enough market power, they can't influence the price. They just keep producing until their cost of producing one extra unit equals the market price. If this all sounds a bit foreign, that's because many of the markets for the products we consume are tainted by a degree of market power. Girt by sea, Australia has proved a breeding ground for monopolies, or oligopolies. Pure monopolies, where one firm is the sole seller of a product without close substitutes, are quite rare. They arise when a key resource is owned by one firm, the government gives a single firm exclusive rights to produce a product, or the costs of production make a single producer more efficient than a large number of producers. Oligopolies, however, abound. Think of groceries and you see the market dominated by two players - Woolworths and Coles. Think petrol and you get Caltex, BP, Shell and Mobil. Think banks: Commonwealth, Westpac, NAB and ANZ. Think telecommunications: Telstra and Optus. And of course, think airlines and you get Qantas and Virgin.

It's hard to turn around without seeing the corporate logo of some oligopolist. No wonder we Australians so often feel like we're getting ripped off, either paying more than we should in a truly competitive market or simply not getting the service that we deserve. Trade liberalisation has opened up opportunities for cheaper imports of many everyday items such as TVs, fridges, couches and cars. When goods are internationally traded it is harder for monopolies to survive. But many of our big purchases, groceries, electricity and home loans continue to be supplied by a limited number of domestic companies and so we need to be constantly vigilant to the presence of monopoly power. One of the main jobs of an Australian government, then, is to stand up against these oligopolists and try as much as possible to expose them to the rigours of competition. Banks must be bashed, telecommunication monopolies dismantled and cosy monopolists forced to provide a good product, not just for shareholders but also customers.

The Rudd government ran several inquiries into the concentration of power in the grocery and petrol markets. The problem is, once an oligopoly exists, it's hard to unscramble the egg. Without creating new companies, like turning Australia Post into a bank, the best that can be done is to ensure barriers to entry are as low as possible. Market power is lessened if participants are opened to competition from foreign competitors. But where the product sold is a key strategic resource, such as the telecommunication or electricity networks or mines, opportunities for opening up the industry to foreign competition are limited. Oligopolistic competition is, then, an enduring feature of the Australian business landscape. And the rewards can be handsome. Alan Joyce, the CEO of Qantas, which has a near-monopoly over air travel in Australia, has hit the headlines with his $5 million pay packet. But he is far from the highest paid CEO in Australia. Top of the list for 2010 was the outgoing Commonwealth Bank boss Ralph Norris, on $16.2 million. ANZ's Mike Smith also makes the top 10, as does Westpac's Gail Kelly on $9.6 million and Macquarie Group's Nick Moore (an unfortunate name) on $9.6 million. In fact, of the 10 largest companies in Australia, eight also have CEOs in the top 10 of highest paid executives. Economic theory says workers are paid according to the value of their marginal product. But what are the bank CEOs adding?

It is hard to escape the conclusion that many of their salaries derive not from the value added by the CEOs but the monopolistic power those companies exert over the prices paid by the Australian consumer. Australian CEOs say they must be remunerated so as not to be tempted away by jobs as international CEOs. But running a company is a tougher gig in the big, deeper pools of larger economies. Better to be a big fish in a small pond. CEOs also say they need to be compensated for the risks involved in running these very large companies. But what risk? Running a big bank in Australia is about as risky as running a large bureaucracy, and we don't pay public servants anything like these guys get. The membership of the top 10 companies in Australia is remarkably stable. These are not companies that fall over. In fact, the big four banks have an all but explicit guarantee they will not be allowed to fail. Sitting in a CEO chair at the top of the ASX food chain is a great gig. These companies are simply not at risk of going under and their CEOs simply don't deserve what they get. Loading

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