Prada, Chanel, Dolce & Gabbana, Versace… these are all brand names familiar to almost everyone. They are known to be fancy and obnoxiously expensive. Yet despite the fame of the latter brands, people are unaware of the lesser known name that is behind the glory of these designers.
Luxottica is a glasses and eyewear company that controls 80% of the major brands in the global eyewear industry. “Products in some industries seem to only get better and cheaper -- laptops, for example -- while other products, like eyeglasses, remain strangely pricey, with only superficial innovation…” claims Colombia University law teacher, Tim Wu. Why is that?
The answer is simple: Luxottica is a monopolistic company, meaning it has total domination over an industry, which in this case is the glasses and eyewear market. Having this market structure, Luxottica can control and set its own prices, making them as high or low as it wants. Yet despite price increases reaching around $400 for a pair of glasses, around half a billion people around the world still avidly purchase their products, as substitutable options are limited. So if monopoly is the key to Luxottica’s high profits and high demand, would it still have the same outcome if it were placed under another market structure?
A common structure present in luxury product markets such as sportswear and makeup is monopolistic competition. This is a structure characterized by the presence of numerous firms selling slightly, but not completely,