As my fellow four-eyes will know, buying new glasses can be an expensive undertaking. The fanciest frames at LensCrafters often sell for $400-500. Holding those little assemblages of glass, metal, and plastic that cost $25-50 to make in your hand, you might wonder how exactly you were roped into paying so much.
The answer is basic economics. Most frames are manufactured by a single company, named Luxottica. The Italian company makes frames and sunglasses for an amazing list of brands and stores, including:
Dolce & Gabbana
The company also makes Google Glass – though 79-year-old Luxottica founder Leonardo Del Vecchio recently commented that he’d be embarrassed to wear the Google eyewear outside of a disco, and that his disco days are over.
Meet the four-eyed, eight-tentacled monopoly that is making your eyeglasses so darned expensive. Luxottica estimates that at least half a billion people around the world are currently wearing their glasses. I don’t know about you, but I am pushing them up my nose right now.
Luxottica controls 80% of the major brands in the $28 billion global eyeglasses industry. This monopolistic structure of the market leads to profits that are "relatively obscene," says Tim Wu, a professor of law at Columbia University and the author of The Master Switch. In a speech given at this year's annual conference for New America, a Washington, D.C.-based think tank, Wu remarks that products in some industries seem to only get better and cheaper -- laptops, for example -- while other products, like eyeglasses, remain strangely pricey, with only superficial innovation.
The difference is due to market structure. Because it controls so many prominent brands and retail chains, Luxottica is what economists call a price maker. That means it can set the price of its goods near the highest amount that consumers would be willing to 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 of a huge variety of different brands means Luxottica can also carefully engineer the prices of different brands to encourage you to shell out an additional $80 for that beloved logo or streak of Tiffany blue.
Regulated v. Unregulated Monopoly (Photo credit: Wikipedia)
In certain industries, monopolies can be appropriate and natural – the power sector, for example, where it costs less for one company to set up and run a power grid than it would for multiple companies to set up competing power grids. But monopolies have no place in a low-tech consumer product market like that for eyeglasses. In this environment, monopolies create a very cynical form of capitalism – giving consumers merely the illusion of choice rather than choice itself, and extracting a lot of money from them in the process.
The easiest way to bust a monopoly like this is for consumers to recognize that they are being overcharged and patronize competitors. Warby Parker, which is mainly an online sales room for glasses, is putting up some competition, but the atmosphere remains rarified.
Many people, Luxottica representatives included, often explain away the high price of glasses by arguing that consumers are willing to pay a lot for something they wear on their faces 15 hours a day. But even if consumers are willing to pay high prices, that doesn’t mean that they should. Prices are determined in large part by the structure of the market.
1/10/17 update: We received the following statement from a representative for Luxottica:
"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. In reality, 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 Luxottica makes eyewear for around 30 different brands, only a few of which we actually 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, Solstice and many other non-Luxottica brands. So yes, while we have a fantastic portfolio, it is false to say we control the market."