Actually, this is the exact opposite of a free market. If there was a true competitive free market, games would be bought at the place with the lowest prices, or there would be one universal price.
Neither is quite right.
A given game publisher has a monopoly property right over sale of a particular game; a single monopolist sets the price of Civ5, or of Starcraft 2, or of Modern Warfare 2, because they control an absolute monopoly over their intellectual property.
However, they are constrained in their ability to charge high prices because the market for PC games is somewhat competitive; Fallout: New Vegas and Starcraft 2 and Crysis 2 and others are substitutes for Civilization 5. If the publisher of Civ5 tries to charge too high a price for Civ5,
The retail market is highly competitive; retail markup basically represents the cost of retail supply.
Digital downloads are relatively small, so they are able to basically get the same cut as bricks'n'mortar retailers but with lower costs.
But the retail market has little to do with pricing. It is the wholesale market where the action is. Steam has minimal influence over pricing decisions, these are largely driven by the publisher.
It used to be the case by convention that basically all PC games sold for the same price, and so competition was almost entirely by volume (good games sold more copies). But now publishers are realizing that they can sell good games at higher prices than mediocre games, either directly (isn't retail on Starcraft 2 $60?) or indirectly (through deluxe editions or DLC).
This might be good thing; it drives publishers into supporting big-budget high quality games rather than lots of mediocre games with smaller budgets.
In terms of price to the final customer: the retail market is very competitive. Retail markup is basically the same everywhere, and the same for all games.
The wholesale market is partly competitive (its a differentiated product oligopoly). But even if it were extremely competitive, we could still expect to see some variation in prices for different games if customer willingness to pay for those games are different; we could observe a market where Civ5 sells for $10 more than Lemonade Stand Tycoon (or whatever) without that being any evidence of market power.
Observing large in price variation across geographic markets (that cannot be explained by cost differences) is evidence of market power in the wholesale market. The best explanation is probably implicit or tacit collusion by game publishers in the Australian market; they recognize that they can collectively make more money in Australia by having a higher price and generating higher monopoly rents. None of them are interested in trying to undercut pricing (eg by publisher A unilaterally reducing the cost of Civ5 in Australia by $10 to try to pull sales away from Crysis 2) because they know that the others would follow, so it wouldn't be in their long-term interest to do this.
Summary:
Its not retail that matters, its wholesale.
Wholesale market is differentiated product oligopoly (monopoly over a single game, but contested by competition from other games).
Higher prices in Australia seem to be across the board for video games.
Observing different prices for different games doesn't necessarily indicate a lack of competition, but seeing wildly different prices in different regional markets is does.
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