To What Extent Is X Monopoly a Good Thing

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To what extent is “Luxottica’ monopoly a good thing?

A monopoly is a firm which owns at least 25% or more of the market share. Monopolies are usually considered to be inefficient due to the lack of competition but is very desirable to firms. Luxottica has 7’000 retail locations worldwide and sells glasses either budget-minded frames or the more fashionably conscious more expensive frames. Luxottica is involved in 80% of all the worlds major eyewear brands production. So why is there large changes in prices between two pairs of glasses manufactured by the same company in the same location and is it a good thing Luxottica has this much monopolistic power?

Traditionally, a monopoly has been seen as a bad thing as it tends to be less efficient than companies who are forced to be as efficient as possible, due to the pressure other competitors put on them. In this case there aren’t any other eyewear producers to compete with Luxottica and therefore provide a pressure to force it to be as efficient as possible. Instead Oakley, Ray-Ban, Vogue, DKNY, Prada, BVLGARI and many other brands are all produced by Luxottica. Due to this lack of competition, the Luxottica will not benefit from dynamic efficiency which is efficiency which relies on investment in research & development, as a result will not come out with new products, new techniques or new process as efficiently as it would if it had pressure to do so form competitors. Consequently it will have increased costs and produce less. This will result in an increase in the price the Luxottica charges to produce eyewear and in turn shifting the cost onto consumers.Therefore resulting in an overall fall consumer surplus (welfare).

Displayed in Figure 1, We can see that there is allocative inefficiency because P is greater than MC, which is caused by the lack of competition which has resulted in a fall in output,…...

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