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Monopoly Market: Case of EssilorLuxottica

Stephanie R. Warner

Johnson & Wales University

ECON5000: A Survey in Economic Principles

Dr. Muleka Kikwebati

February 20, 2022

Luxottica Group is a vertically integrated Italian conglomerate and the largest player in

the eyewear industry, controlling over 80% of the major brands in the eyewear industry. It’s

parent company owns a large portfolio of eyeglass brands, optometry chains eyewear

manufacturing plants and retail stores such as Sunglass Hut, LensCrafters, Pearle Vision, Target

Optical, EyeMed and Glasses.com which mostly carry Luxottica brands. It owns the second-

largest vision insurance company in the US, EyeMed. Their holdings include Oakley, Ray-Ban,

Oliver Peoples, Persol, Costa Del Mar, Vogue Eyewear, Arnettte with licensing deals with Ralph

Lauren, Armani, Prada, Chanel, Versace, Coach, Tiffany, Kors, Burberry and more. They have a

combined customer base that is somewhere between Apple’s and Facebook’s but with little of

the scrutiny of being as well known. Luxottica is a monopolistic company, meaning it has total

domination over an industry. Having this market structure, allows them to control and set its own

prices, making them as high or low as it wants.

Essilor and Luxottica were both extremely successful eyewear companies on their own.

By consolidating as a privately held company, EsssilorLuxottica moved horizontally to corner a

market of expertise and become a superpower in the lens and eyewear field.

A 2012 60 Minutes segment focused on whether the company’s extensive holdings in the

industry were used to keep prices high. Luxottica representatives explain they are worth what

consumers will pay for something they wear on their faces up to 15 hours per day.
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Hypothesis

Luxottica-Essilor is a monopoly and generates abnormal profits.

Literature & Research

Luxottica is publicly traded but it voluntarily delisted itself from the NY Stock Exchange

in 2017 after their $49 billion merger with French company Essilor. Their reasoning was that

they wanted to better service their Italian investor base and save on administrative costs.

Luxottica has worked to maintain an effective degree of monopoly over the eyecare

industry through its use of pricing strategy centering around vertical integration, and

computerization. Luxottica purchased distribution companies while setting up international

subsidiaries and retail stores to expand. This gave then complete control over the product from

production to retail. Through licensing agreements with sunglass designers (a first in the

industry), they strengthened their monopolistic hold and continue to have pricing and placement

advantage over the competitors. David Lazarus of the LA Times said, “When the merger went

through, it strengthened their ability to charge markups of as much as 1,000% for frames and

lenses- market power that comes from controlling all aspects of production, owning the country’s

largest chain of glasses stores and operating a major insurance plan.”

The market dominance and control of key distribution points in the supply chain allow

EssilorLuxottica to turn a huge profit per unit. With 80% or more of all total eyeglasses’ brands

under its label, EssilorLuxottica can more easily sell its lenses along with chic eyewear. Market

control of this type allows the company to be what economists call a “price maker.”
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During the 20th century, the eyewear business worked hard to transform a physical

deficiency into a style statement. Retailers learned that humans are happier when they pay 10 or

20 times the amount of what the glasses take to produce, often under $20 for frames and lenses.

The creation of EssilorLuxottica is a massive deal. It is said to be the response to an

unprecedented moment in the story of human vision- namely the accelerating degradation of our

eyes. For several thousand years, humans have lived in advanced societies, reading, writing and

working, mostly without the aid of glasses. No one is exactly sure what it is currently, indoors

time, the screens, the color spectrum in LED lighting or the ageing populations= but the net

result is that across the world, we are becoming a species that require glasses. There is a global

epidemic of myopia, or shortsightedness, which has doubled among young people within a single

generation. Another slower and more complex process is underway, as populations age and

urbanize and move indoors to work.

On March 1, 2018, the Federal Trade Commission issued a statement on its vote to close

an investigation of the proposed merger of Luxottica Group and Essilor. According to their

statement, the evidence did not support a conclusion that the merger would be a violation of

federal antitrust laws. “FTC staff extensively investigated every plausible theory and used

aggressive assumptions to assess the likelihood of competitive harm. Assessing the likely

competitive effects of a proposed transaction is a fact-specific exercise that considers the current

market dynamics, which may be different int eh future. Here, however, the evidence did not

support a conclusion that the acquisition may be substantially to lessen competition in violation

of Section 7 of the Clayton Act.”

In November of that same year, European Union antitrust regulators also cleared

Luxottica and Essilor in its investigation into the parties’ $58 billion merger. They had launched
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a full-scale investigation into the merger. They closed its investigation telling Reuters in an

email: “This procedure in merger investigations is activated if the parties fail to provide, in a

timely fashion, an important piece of information that the Commission has requested from

them.”

Because it controls so many prominent brands and retail chains, Luxottica is what

economists call a price maker. That means they can set prices for goods at the highest price that

customers will pay for them, unlike more competitive industries, in which competition both

encourages constant innovation and forces the price of goods down toward what they cost to

manufacture. Having control over the pricing means they can carefully set pricing over different

brands. Some assert that monopolies have no place in this low-tech consumer product market. In

this environment, monopolies create a cynical form of capitalism- giving customers only the

illusion of choice while taking their money.

Luxottica is quoted in saying: “We’re proud to make some of the most beautiful and

highest quality eyewear in the world, but we are in no way a monopoly. The optical industry is

very competitive and fragmented. Of the close to 1 billion pairs of glasses sold worldwide last

year, only 93 million of them were produced by Luxottica-less than 10%. Also, there are literally

thousands of eyewear brands available to consumers today and we make eyewear from around

30 different brands, only a few of which we own. Even on the retail side, half of all glasses sold

in the U.S. are done so by independent opticians. The other half are sold by chains including

Costco, Walmart and Solstice and many other non- Luxottica brands. So yes, while we have a

fantastic portfolio, it is false to say we control the market.” That’s quite the rose color glassed

look at the situation.

more important than fixating on the brands and profits, the industry as a whole must expand

dramatically in order to serve the world’s growing, ageing populations and increasing myopia

among the young. “The danger is if their proposed answer to these problems turns out not to be

the answer,” said Hadley. “They have stifled all opposition, and so nobody else has the chance to

come up with the right answer.”. The stakes are highest in parts of the world that currently do not

have anything like enough access to eyewear- what the industry calls the “white spaces” of

Africa and parts of Latin America and Asia. Professor Naidoo of the Brien Holden Institute was

one of the authors on a groundbreaking paper that forecast that half the world’s population will

be myopic by 2050- almost 5 billion people. During the course of a single generation, across the

world, from Inuit communities in Alaska to secondary-school students in Northern Ireland,

researchers have recorded a roughly doubling in the number of people who became short sighted

as children. What typically occurred to vision when you hit your late thirties or early forties is

now occurring to teenagers. Vision campaigners forecast that the myopia epidemic will put an

enormous stain on health care systems across the developing world. In some of the least-served

markets in the world, Essilor is more or less the only game in town. The company is eager to

reach what it calls its “Next Generation Consumers”- people in the developing world who don’t

wear glasses yet. Dr. Norbert Gorny, the company’s head of R&D calls them “The Uncorrected”.

This is a frightening path we are on, and it leads me to believe that EssilorLuxxottica will have a

larger hold on the global market in countries who simply can’t pay the price for corrective vision.
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Conclusion.

Luxottica-Essilor’s total market share is hard to quantify because their competition is

either independent optometry facilities or conglomerates like Costco and Walmart that don’t

break down vision numbers often for the public. Some estimates their market share as high as

80% while others go as low as 10%. It’s hostile takeovers of Ray-Ban and TIL Oakley in the 90s

and 2000s and its aggressive business tactics

Limitations and Future Research Opportunities.

The world is full of anticompetitive monopolies, many of which operate in plain sight.

I will research more eyecare companies that are not under their umbrella and support

brands such as Warby Parker and Maui Jim.

Just as the FTC stated back in 2018 after the merger, the current market dynamics at the

time were considered. In the future the market dynamics will change. Or perhaps the

competition’s reporting structure will change so that a more accurate assessment of their market

share will be more evident.

References.