KIS Summary:
- An annotated breakdown of a Band 6 HSC Economics essay
- Marking insights to help students consistently craft high-scoring essays under exam conditions
⭐️ Why Parents & Students Love KIS Tutoring
The Essay Question
Analyse the effects of market concentration on efficiency and equity in the Australian economy, with reference to the Australian electricity market.
Note: This sample response has been adapted from one of my own high-scoring economics essays and reshaped into an HSC-style response. The goal is to show how strong economic analysis is built through clear structure, relevant theory and contemporary evidence.
Band 6 HSC Economics Essay Exemplar
Background on the Australian Electricity Market
Energy plays a core role in contemporary society – from providing warmth to powering industrial processes (OECD, 2022). Modern economies industrialised globally following the discovery and utilisation of non-renewable energy sources – coal, crude oil and natural gas. In recent years, conditions in energy markets have sustained unprecedented shocks – shortages in supply, increasing global inequalities in living standards and conflict are some factors contributing to concern in the energy market.
In Australia, the electricity market is largely governed by the National Electricity Market (NEM); compromising Queensland, New South Wales, Victoria, South Australia, Tasmania, and the Australian Capital Territory. The Australian Energy Market Commission (AEMC), the Australian Energy Regulator (AER), and the Australian Energy Market Operator (AEMO) oversee the effective management of Australia's electricity supply and demand.
The Australian electricity market consists of three sectors: generation, distribution and retail (OECD, 2022). Distribution, generation and transmission of energy necessitates physical capital assets: plants, poles, wires, transformers, reactive devices, monitoring and telecommunication equipment that make up the energy network grid. Substantial upfront costs and economies of scale imply it is more cost effective to have a single firm facilitate service, maintenance and planning– giving rise to a natural monopolistic market (AEMC, 2023). The competitive retail sector provides the interface between retailers and consumers - facilitating the sale of energy, as well as offering balancing and reconciliation services (AER, 2022). Reliability within this interdependent sequence is determined by the extent to which consumers have a continuous supply of energy (AEMC, 2023). The level of reliability that transmission and distribution networks are required to provide influences the amount of capital expenditures made by network companies. The cost of these investments is always reflected in the electricity rates paid by retail consumers.
For HSC students, the insight here is simple: context should support the argument, not replace it. Keep it concise, relevant and connected to the question.
Market Concentration in the Australian Electricity Market
Magnitude of Market Concentration
AGL Energy, Origin Energy and Energy Australia are the three largest companies in the Australian electricity market, with a combined market share of 49% in the generation market and 60% in the retail market. The top five firms in the generation market have an 83% combined market share (McConnell and Sandyford, 2020). The extent of market concentration raises concerns about the prevalence of anti-competitive behaviour and pricing strategies, which may lead to higher long-run electricity prices for consumers. Indices such as Herfindahl-Hirschman Index (HHI), Pivotal Supplier Index, and Residual Supply Index, often insinuate that the NEM is moderately or highly concentrated in each geospatial region (Marshall et al, 2021).
The paragraph also stays linked to the question by connecting concentration to pricing power, consumer outcomes and long-term efficiency concerns.
Implications of Market Concentration
The concentration of market power among a small number of dominant players in the energy market may impose several negative consequences for consumers. It may result in higher prices, as incumbent firms with a superior expanse of power can set rates without the fear of losing clients to competitors. This advantage will likely result in reduced consumer welfare and hinder the ability of consumers to access affordable electricity (ACCC, 2022). Moreover, incumbent firms may introduce predatory pricing strategies, such as tie-in sales; many firms possess universal supply contracts to apartment buildings in Sydney, NSW – affecting the ability to switch provider and thereby clouding the consumer utility maximising process. Market concentration may also invoke collusion among dominant players. (Pepall et al., 2019). The dominance of large firms may deter smaller players from entering the market, stifling innovation and investment in infrastructure (McConnell, and Sandiford, 2020).
The ACCC report identifies market concentration as a major concern in the electricity market, particularly in the generation market. The top three companies have a significant market share, vertical integration, and ownership of both generation and retail assets.
To make this even stronger, the judgement could be slightly more explicit: market concentration is not automatically negative, but it becomes a concern when it weakens competitive pressure and harms consumer outcomes.
Market Competition in the Australian Electricity Market
Competitive Landscape of the Australian Electricity Market
Traditionally, few major players have dominated the Australian electricity market; a consideration that led to significant policy amendment in the 1990s (Marshall et al., 2021). Smaller firms have recently entered the market, particularly in the retail sector (Wolak, 2021). As a result, there is evolving competitiveness, as smaller firms can now offer progressive, novel services to consumers.
The response shows nuance by distinguishing between retail competition and the more concentrated areas of generation and infrastructure. The key lesson for students is to avoid generalising - all economics issues are complex and nuanced.
Implications of Market Competition
In any market, consumers derive benefits from heightened competition. Grounded economic theory is explicit - this will bring prices down, since firms are compelled to compete on price to attract and retain clientele (Pepall et al., 2019). Competition can encourage targeted investment and innovation in the market, as players are induced to differentiate themselves through pioneering new and superior services (Wolak, 2021). In a competitive market, productivity is augmented through encouraging firms to operate more efficiently, in order to maximise profit (Pepall et al., 2019).
Although there is greater competition in the Australian electricity market's retail sector, there is still very little competition in the market for producing power. Barriers to entry and robust sunk costs, the dominance of incumbent enterprises, and a general lack of market ‘openness’ are some of the dynamics that make the generation industry less competitive (ACCC, 2022). The ACCC report makes several recommendations to increase competition, including market liberalisation - introducing subsidies to make it easier for new participants to enter, and encouraging the development of new technologies that can make the market more efficient and reliable (ACCC, 2022). The research advises the government to consider anti-trust strategies to improve market competition, such as requiring vertically integrated corporations to divide. Retail rates are projected to fall as a consequence of greater price rivalry among firms attempting to attract and sustain customers.
Contrastingly, increased competition within the energy market may entail negative consequences. Disintegration will intuitively make it difficult to collaboratively coordinate investment in distribution capital and ensure supply security (Wolak, 2021). Increased competition may result in decreased short-run profits for enterprises, restricting their capacity to spend in wages.
That balance is important. Band 6-style writing often comes from weighing up both the benefits and limitations of an economic process.
Efficiency and Equity in the Australian Electricity Market
Efficiency is the capacity of the market to produce and distribute resources in the most cost-effective manner (Simshauser, 2021). In the realm of industrial organisation, theoretical and philosophical discussions concerning efficiency and equity are useful in understanding adverse market conditions. The Pareto efficiency or optimality (Pareto, 1906; Pepall et al., 2019) affirms that resource allocation is considered efficient when it is impossible to redistribute commodities in a way that benefits one individual, without diminishing the welfare of another. In the context of energy distribution, Pareto (1906) denotes that the market's capacity to provide electricity in the most cost-effective manner maximises resource utilisation and societal welfare.
In addition, Bertrand's (1883) seminal work on competitive markets provides additional support for the concept of efficiency as the optimal mechanism for electricity provision. When firms compete solely on the basis of price, the market obtains allocative efficiency; where the price of services correspond to their marginal cost, according to Bertrand's (1883) model. Applying this concept to the electricity market, efficiency is achieved when prices reflect production costs precisely, ensuring that resources are allocated efficiently. By prioritising efficiency in energy generation and distribution, the market ensures that electricity is affordable; resource allocation is consistent with societal welfare. Philosophical perspectives provide strong theoretical support for efficiency as the optimal strategy for maximising social welfare, development and growth (Borenstein & Holland, 2005). Embracing market efficiency is not only a fundamental economic principle, but also a means of obtaining the greatest result for society as a whole.
The ACCC (2022) denote several areas wherein efficiency in the electricity market could be enhanced. The transmission and distribution networks in Australia are presently inefficient (Simshauser, 2023), which raises consumer costs and results in a dead weight loss. (ACCC, 2022). The ACCC report is explicit in supporting the need for increased spending on modern infrastructure. Moreover, there is currently excess available capacity, which results in inefficiencies and higher costs (ACCC, 2022). The report urges the market's excess capacity to be reduced; by closing outdated power plants or by investing in more advanced infrastructure that facilitates superior transmission.
Another imperative constituent of any market is the concept of equity: the ability to offer affordable and reliable energy to all consumers, regardless of their location or income. Rawls (1971) posits that an equitable society is one where the most vulnerable members are given priority – public resources should be distributed in a way that benefits the most deprived. There are respective areas wherein equity in the Australian energy market could be improved (ACCC, 2022). The area of network or nodal pricing is one of the foremost themes in the literature; current network pricing is discriminatory toward consumers in rural and remote areas, who frequently pay more for electricity than consumers in urban areas (ACCC, 2022).
According to the ACCC report, consumer protections and safeguards, such as those for low-income households and small businesses, are insufficient. The report suggests strengthening these measures by taking steps to enrich hardship policies and augmenting regulatory control over retailers. The report also mentions that the switch to renewable energy has equity implications; the government must create regulations to ensure low-income households and other vulnerable consumers are not disproportionately affected by the switch to renewable energy and are able to participate in distributed generation (ACCC, 2022; Sioshansi, 2014; Best & Chareunsy, 2022.
This section considers how market outcomes affect different groups, particularly low-income households, small businesses and regional consumers. This helps the essay move beyond theory and into real-world impact.
The operation of the Australian electricity market has undergone substantial shocks and adjustments recently. Among these are the establishment of renewable energy targets, the shutdown of sizable coal power stations, the reduction in domestic oil output, and the opening of the east Australian market to LNG export (McConnell and Sandyford, 2020). Furthermore, ideological political narratives have clouded public perceptions toward the causes of energy price rises. These factors have significantly decreased the accessibility and transparency within the market, a substantial consideration in examining equity (Stiglitz, 2015).
This response provides a comprehensive analysis of policy options for improving functionality within the electricity market in Australia. However, in order to implement these reforms, the federal government and the electricity sector will need to collaborate, necessitating significant investment. All stakeholders, including electricity providers, regulators, and consumers, must be steadfast in their commitment to evolve.
The paragraph also helps build the essay’s sustained judgement by showing that electricity market issues are complex and cannot be explained by one factor alone.
Recommendations For Policy
The Australian energy market is evidently characterised by high levels of market concentration, with a small number of dominant players controlling a sizable portion of the market. The ACCC report identifies several areas for improvement, namely boosting competition and decreasing market concentration. The report also points out ways to encourage sustainability, like stepping up investment in renewable energy sources and investing in a carbon pricing system. Furthermore, the government ought to consider policies and economic strategies to encourage accessibility, lessen market complexity, and promote transparency (ACCC, 2022; AER, 2022).
The government could provide firms with incentives to innovate; offering subsidies for distributed and renewable generation – aligned with the Kaldor-Hicks (1950) concept of efficiency; and reconsider nodal pricing (OECD, 2022). Introducing grants, net metering (Borenstein & Davis, 2016) or credits for distributed generation will offset the sunk costs of installation and encourage uptake, particularly for households (Sioshansi, 2014). Additionally, stringent Renewable Portfolio Standards (Nelson et al., 2013; Simshauser, 2023) should be mandated for large incumbent firms, particularly in the generation market.
Direct price-suppressing measures are intermittently regarded as ineffective instruments for protecting vulnerable consumers; they may impede adjustments in demand such as energy-conserving behaviour and efficiency or renewable investments (Shinde & Amelin, 2019). This paper proposes income support measures that identify and support vulnerable households (AER, 2022) in order to mitigate the distortive effect on price formation (OECD, 2022). This could be achieved through enhanced rebate schemes such as allocating discounts based on household assets (Best & Chareunsy, 2022).
The government could pursue methods to assure non-discriminatory access to energy grid infrastructure, such as third-party access provisions. In the United Kingdom and Europe (OECD, 2022) network operators are expected to foster transparent, non-discriminatory charging methods. Network operators may also be required to partially separate, such as by conducting network and competitive activities in separate functional or legal entities (OECD, 2022). Vertical integration can help firms gain market control and reduce market competition (ACCC, 2022; Bushnell et al, 2008). This response urges the government to consider anti-competitive measures such as asset sales or the separation of vertically integrated businesses. Additionally, the government should consider strategies to reduce financial risk and ‘cost to serve’ (AER, 2022) for new entrants.
The potential effects of implementing a carbon pricing mechanism, particularly on the conduct of electricity producers, should be further investigated. Regulators should evaluate the effects of pricing structures in comparable nations, such as an emissions trading system, price ceilings and divestiture policies (Chester, 2006), as well as the potential effects of increased wholesale purchasing cost disclosure (Nelson et al, 2013).
Policymakers and market participants can better understand the Australian electricity market and spot opportunities for advancement to foster competition, efficiency, and sustainability in the market by dedicating investment to research in these areas. Businesses may be less reluctant to invest in costly infrastructure if empirical evidence on marginal revenue growth is obscure. Further research could quantify the potential effects and externalities of investment in renewable energy sources, especially with regard to how it may affect the socio-economic landscape in Australia. Finally, consumer voice and individual lived experiences should inform regulatory design (OECD, 2022).
Overall, this response demonstrates many features of a Band 6-style Economics essay. It uses economic terminology, applies theory to a contemporary Australian example, supports claims with evidence and develops a clear line of argument.
The strongest feature, in my opinion, is the sustained analysis. The response does not simply describe the electricity market. It continually links market structure to efficiency, equity, consumer welfare and policy reform, with nuanced and balanced recommendations.
The key lesson for students is that strong Economics writing is built through structure, evidence, analysis and judgement.
🚀 Check out more of our HSC Economics Study Guides
Manoj Arachige
Manoj Arachige
Manoj Arachige
FAQs
Is HSC Economics Hard?
- Yes, economics is a challenging subject due to its complex theories and content-heavy nature.
- However, breaking the material into manageable sections, seeking clarification from teachers and tutors, and actively engaging with real-world examples can make the course more approachable.
What actually makes an HSC Economics essay Band 6?
A Band 6-style Economics essay does more than remember the syllabus. It builds a clear argument, uses accurate economic terminology, applies theory to a real issue, supports points with contemporary evidence and makes judgement throughout. The strongest responses explain causes, effects, trade-offs and policy implications.
Do I need to include definitions in my HSC Ecnomonics essay?
It’s better to include them if you can. This shows that you understand the topic and helps to keep your argument clear from the beginning. I often think to myself “Would someone understand my writing if they didn’t know much about Economics?” If the answer is no, always include a definition.
How many statistics should I use in an Economics essay?
There is no perfect number, but every major argument should be supported by some form of evidence. This might include statistics, government reports, policy examples, economic trends or real-world case studies. The key is to use evidence with purpose. Do not drop a statistic into a paragraph and move on. Introduce it, connect it to the question, then explain what it proves.
Do I need to include government policy in a 20-mark response?
Usually, yes, especially if the question asks about economic outcomes, market failure, efficiency, equity, growth, inflation, unemployment, external stability or distribution of income. Policy is often where your judgement becomes clearest. Instead of simply saying “the government should intervene,” explain what type of intervention is needed, how it works, and what limitations or trade-offs it may create.
Want more personalised guidance to help support you through your studies? Find your perfect tutor match today!
What Our Students & Parents Say
600+ Five-Star reviews across all our tutoring programs — hear why below !👇
Written by KIS Academics Tutor Riley Castle.
