IRISH CASE STUDY:
Chapter 9: Perfect Competition and Pure Monopoly: The Limiting Cases of Market Structure

O'Rourke Set to Axe Bank Monopoly
by Liam Gallagher, Department of Economics, University College, Cork.

This case introduces a number of aspects of monopoly power. The case is based on the Minister for Public Enterprise's move to end Bank of Ireland's 27-year reign as sole provider of foreign exchange at Irish airports. Bank of Ireland has exclusive rights in supplying a good/service in a market. For this property right, Bank of Ireland agrees to pay Aer Rianta (the granter of the property right) a rent. A further characteristic of the market is that there is asymmetric information - the buyers have less information about the price - that allows Bank of Ireland to "overcharge captive customers". To eliminate this monopoly power the government proposes that, in future, exclusive rights not be granted and that a number of suppliers operate in the market.

The case is based on an article in the Sunday Independent, June 28th, 1998 by Shane Ross.

The Minister for Public Enterprise, Mary O'Rourke TD, is to instruct the chairman of Aer Rianta, to end the Bank of Ireland's monopoly at Ireland's State-run airports. The monopoly position which the Bank of Ireland has enjoyed since 1971 is an exclusive franchise in foreign exchange business at Irish airports.

Two years ago, persistent consumer complaints about overcharging at the airports' foreign exchange outlets prompted a Sunday Independent investigation which revealed that travellers were paying far more for foreign exchange at the airport than elsewhere. Tourists were exchanging money at the Bank of Ireland's branch on arrival, before they had the chance to compare the exchange rates with more competitive prices at other banks outside. At the time, the Bank of Ireland denied overcharging these captive customers.

It is understood that the Bank of Ireland agreed to pay £1m a year to hold the exclusive franchise to the retail branches at Dublin, Shannon and Cork airports. This figure is believed to have been index-linked from 1993. A spokesman for Aer Rianta has refused to confirm the figure on the grounds that it is commercially sensitive information.

In a debate in the Senate last week, Mrs O'Rourke said she had not known of the Bank of Ireland's monopoly at the airport but would take immediate steps to end it and to "ensure ... competition" and that "on the next occasion not just one bank is offering services". The tender comes up for review in March 2000 and it is envisaged that invitations to tender will be issued next year.

The Minister said that she would arrange a meeting with the chairman of Aer Rianta and ask that there be competition on the ground in banking facilities at Dublin airport in view of a significant increase in passenger numbers. She went on to confirm that "one bank has a monopoly. I am not being critical of the bank; I am just saying that one bank has a monopoly of captive customers".

This issue has become increasingly important as passenger turnover has increased consistently at the three airports. When the Bank of Ireland won an extension of its monopoly by Aer Rianta in 1993, passenger numbers were six million. By 1998 this figure had more than doubled to over 13 million.

Sources at Aer Rianta were quick to point out that when Ireland enters the Euro in 1999, foreign exchange profits at the airport will be greatly reduced. In response to the point that the three largest currencies in the world - the dollar, sterling and the Yen - would not be affected by EMU, a spokesman said that there would be no more retail business within the new Euro currencies. Furthermore, Aer Rianta was expecting as a matter of policy that there would be multiple franchises in the future. Following the Minister's intervention last Friday, they will have little option.