Question

a. Contrast the general price elasticity of demand for alcohol and tobacco in Australia.

b. What is the level of competition faced by firms in each market?

c. Is the oligopoly of the big four banks in Australia an economic strength or weakness? Support your answer

Answer 1

Australian bank oligopoly 'fit as a fiddle'

The enormous four Australian banks are probably going to keep on benefitting from the 'riches impact' made by solid resource esteems, with financial specialist worries about high private home loan exposures "exaggerated", says Morningstar.

In an investigator note about Westpac, Morningstar said Australia's "reasonable and exceptionally beneficial real bank oligopoly is perfectly healthy".

The prevailing position of the significant banks will be additionally powered by the 'riches impact' from solid resource esteems, the normal ascent in family unit spending, continuous commitments from sends out, the east drift private development blast and proceeding with government interest in framework, said the exploration house.

Westpac remains Morningstar's favored significant Australian bank, with its home-credit development procedure saw as a center quality as opposed to a key shortcoming.

"Speculator concerns, fixated on [Westpac's] extensive introduction to private home loans, are exaggerated … We see strong income upside potential, with global financial specialists proceeding to concentrate on negative here and now issues," said Morningstar.

The weight on the banks to bring capital up keeping in mind the end goal to fulfill the prudential controller is probably going to ease in coming months, said the note.

"We expect APRA will enable the real banks to raise the normal higher least capital necessities naturally finished a three-to-four year time frame," said Morningstar.

"Regardless of controller and media clamor, it is ending up progressively clear the capital raising situation has been deferred for Westpac and real Australian bank peers.

"This is a positive result and one we have been pushing for a while at any rate."