Friday, 28 June 2013

Monopoly Through Austrian Lenses

By Jonathan Newman

A recent 60 Minutes piece by Lesley Stahl cut into an extremely urgent problem of our day: expensive sunglasses. The report identified a possible monopoly in the market for glasses, a firm called Luxottica, which owns almost all the leading brands of eyewear, four large retailers of glasses, and even a popular vision insurance provider.

Stahl interviewed the CEO of Luxottica, Andrea Guerra, and questioned his business practices, the prices of his products, and Luxottica’s growth over the years. At times, she almost seemed to scold the successful CEO for, well, being so successful.

In her interview, Stahl complained about the prices of Guerra’s products, saying, “they're very expensive. They can be very expensive.” Guerra, with a heavy Italian accent, responded with “They can. This is one of the very few objects that are 100-percent functional, 100-percent aesthetical, and they need to fit your face for 15 hours a day. Not easy, and there is a lot of work behind them.”

Other hard-hitting remarks like “How does the consumer benefit from all of this?” and “Your prices are still high,” were met with nonchalant (yet true) answers like, “Everything is worth what people are ready to pay.”

Do Guerra’s profits indicate that he is a consumer-harming monopolist? What light does Austrian economics shed on this question?

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