The Productivity Commission has identified vertically and horizontally integrated businesses, often owned by banks, as one of the main barriers to entry that can give rise to uncompetitive incumbency advantages in the superannuation industry.The commission said this would be a focus for its upcoming review of the efficiency and competitiveness of the industry.The other main area of focus would be the processes for allocating default fund members to products. Default funds members, who make up the majority of super fund members, are those who do not actively choose a fund or investment option and have those choices made for them, usually by their employer.Yesterday the commission released a draft report setting out proposed criteria for assessing the industry's efficiency and competitiveness. It has called for responses to its draft by September 9.As part of its response to the Financial System Inquiry, the Government asked the commission to take up some issues raised in the FSI report, which said fees had not fallen by as much as would be expected given the substantial increase in the scale of the superannuation system.The FSI said more needed to be done to reduce fees and improve after-fee returns. As a first step, the commission was asked to develop criteria to assess the efficiency and competitiveness of the system.The commission's draft report said there were two main barriers to entry that could give rise to incumbency advantages: default fund status and vertical/horizontal integration.On the issue of vertical and horizontal integration it said: "The system is bigger than just superannuation funds. It encompasses many horizontal and vertical relationships on the supply side.""Vertically and horizontally integrated entities often benefit from access to well-developed distribution channels and economies of scope. While being a barrier to entry, this may not necessarily be inefficient. "Concerns would arise, however, if this integration led to anti-competitive behaviour."It said the key question was not whether some retail funds had a competitive advantage over other funds, but how that advantage was used and the long-term consequences for members.Concerns would arise about fund activities that contravene legislative prohibitions on inducements to employers. Another cause for concern would be any evidence that impediments to accessing distribution channels were leading to adverse outcomes for members.On the issue of default funds, the commission said the relevant assessment was whether the process of selecting defaults was contestable and competitive.