Rising energy prices are significant contributors to inflation, but more can and should be done to curb power where a handful of providers dominate | OPINION from Professor Rod Sims, who was chair of the ACCC until March
Increasing interest rates often seems to be our only weapon against rising inflation. But understanding the role of market power and curbing its use can also play a role, as can taking some sector-specific action.
When there is high inflation, dominant firms often realise they can increase prices above any cost rises because consumers will be more accepting of this. They will often do this subtly over time. Further, companies gain market and so pricing power by creating barriers to new firm entry and by controlling supply relative to demand. This means they can increase prices knowing market responses will be limited.
In the longer term we need to do what we can to promote more competitive markets. Antitrust policy must be more central to overall economic policy.
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