Packaging oligopoly
Here's an interesting phenomenon. The $450 billion worldwide packaging industry can be divided into two basic divisions, flexible packaging (bags, boxes, foam containers, paper wraps, bubble wrap, etc.) and rigid packaging (cans, glass and plastic bottles, cans, and plastic containers). Soft packaging has a large number of manufacturers and no strong dominating oligopoly. Rigid packaging is highly concentrated in a few hands that use their oligopoly status to get strong returns.
The key rigid packaging companies are Owens-Illinois, Saint Gobain, Anchor Glass (bottles); and Crown Holdings, Ball Corporation, U.S. Can, and Rexam (cans). Most of these companies make various kinds plastic containers. These companies get big international contracts with Coca Cola, Budweiser, Kraft, and other food and beverage giants. Few can compete since the barriers to entry are so high in terms of equipment, global reach, and expertise.
One other thing -- they don't compete suicidally on price.
According to Wall Street Journal article ("Rigidity Pays in Packaging", 5/23/05), reports a rise in the profits of the leading companies in this sector:
The secret is pricing power. Rigid packaging is dominated by a relative handful of players, who are disciplined about limiting capacity. They have pocketed gains from internal cost-cutting, rather than handing over those savings to powerful customers like Coca-Cola Co. and Anheuser-Busch Cos. in the form of lower prices.
As the article notes:
Consolidation has helped rigid producers. The five largest flexible packaging producers hold only 32% of the U.S. market, according to industry estimates, while a category such as beverage cans is dominated by Ball, Crown, and London-based Rexam PLC, which together hold over three-quarters of the U.S. market.
By contrast, the flexible packaging manufacturers (such as Bemis, PrintPack, and Sealed Air Corp,) are generally doing less well. They have less ability to set prices, as the barriers to entry are low. Thus that segment is involved in more destructive price competition.
