Sunday, April 20, 2003

Why not monopolies? You may think that the logical consequence of oligopolies and oligopsonies are monopolies and monopsonies. But monopolies make no sense in the current climate. Major industrial nations are eager to quash monopolies when they occur and any company threatening to be the sole major player in any area faces protracted court battles, forced concessions and increased government regulation. As Microsoft has learned, being too dominant is a dangerous attention-getting position, one that leaves you open to governmental action. Far better to do what Coke and Pepsi do.. They divide the world between them, with Coke predominant but Pepsi breathing down its neck. The only other real competitor they have in the soft drink industry is Cadbury-Schweppes (with Doctor Pepper and Seven-Up). The reality of tough competition is maintained, but the likelihood of any of these companies making a truly revolutionary disruption in the market is unlikely. The battle follows unstated rules.In general, Pepsi and Coca Cola follow similar product strategies, both in their base categories and in their introduction into new categories (water, sports drinks, fresh juice). They get it all—cola lovers, other soda drinkers, even anti-soda people who want to drink sports drinks,  water, iced tea, or juice. What they have managed to do is to keep a wide ranging competition within borders. Any advantage of one will be countered by the other. Both are inevitable, sitting side by side on the shelves in every store, even vending machine next to vending machine. They can also, quite within the law, avoid cutthroat price competitions. They don’t have to collude illegally, though certainly some oligopolies have. All they have to do is “signal” to each other any price moves in advance. They know it is suicide to compete too deeply on price (though they’ll do it tactically at certain seasons in certain markets, with discounts rather than price reductions) . With a small number of competitors, there is easily established a consensus on what retail prices should be. The music industry is a good example, where CD prices have remained high and pretty even across virtually all labels and all segments. Gasoline vendors remain keep gas prices in lock step, and movie tickets do the same. This is partly due to competition, fear of pricing yourself out of the market.  But it also is a result of the few companies in most mature markets having an interest in some amount of price stability  Oligopolies give companies most of the advantages of monopolies without the hassle of excessive goverment oversight in the U.S. and in Europe. The battle for these companies is on the margins, not via a frontal assault. There's not to deny a Cold War of sorts between, say, Miller,  Anheuser Busch and Coors; it's just that they avoid mutual destruction and keep their fights indirect.  What they all fear most is the emergence of another superpower. 10:28:54 AM

comment []