Friday, 13 April 2012

Indigo as a Monopoly

Indigo as a Monopoly
Andrew Dent and Alex Curry

In the 1990s the hard copy book market in Canada changed dramatically. Governments had not allowed large American book stores like Borders to expand into the Canadian market in order to protect smaller stores; This lead to the market being full of small, mostly independent book stores. However two new chain stores named Chapters (1994) and Indigo (1996) opened and shifted the market share enormously.  Within the space of only a few years the two retail stores became giants in the market and were the only contenders for market dominance. The previous abundance of small local book stores was pushed out of business by low prices and the massive selection that these massive stores could offer.  In 2001 the two book stores merged creating the largest book retailer in Canada by far. Over the next few years the newly created Indigo(now including Chapters) bought Coles and Worlds Biggest Books giving it almost complete market share in Canada through its 88 super stores and 179 mall based stores.  Indigo continued its run of success with ever increasing revenues and net income gains resulting in 1 billion dollars total revenue in 2008. This prompted John Lornic to write that "no other sizable developed country has let ownership of bookselling become so concentrated." He even stated that Indigo was, "The closest thing to an unregulated monopoly in Canada's private sector."  However the entrance of Amazon into the Canadian market in 2006 (which was strongly opposed on the legal ground that American owned book retailers could not operate in Canada) lead to Indigo losing some of its Monopoly power. This power was further reduced in 2009 when the kindle, Ipad, and other Ebook fridly hardware companies came out with reading tablets leading to the digitalization of books on a massive scale. No longer was Indigo the sole supplier of books in Canada, thanks to the completive prices offered by digital books and Amazon, Indigos monopoly power was smashed.

In this segment Indigo will be examined in order to determine if indigo met the criteria of being a monopolistic firm during the height of its in 2006.
 1. The only seller of a good or service
·         Indigo was the only major retailer with more than 4 locations in all of Canada
·         The only competition was individual book stores or very small chains such as tattle tales
·         Large American book stores could not enter
Verdict: Not the only seller of books but took up the majority of sales: impure monopoly

2. No viable substitutes exist
·         Were a very small number of small chains
·         Were a small number of small single book stores
·         This was before online book sellers like Amazon existed in Canada
Verdict: A few viable substitutes: impure monopoly 

3. Monopolists are Price Makers
·         Indigo relies on low prices to prevent firms from entering the industry therefore they have little control on prices over a certain amount
·         They did not worry about losing customers to small individual stores that could not advertise small prices or set prices due to their high cost of production or buying the books
Verdict: had non monopolistic ability to change price

4. Significant/Total Barriers to Entry Exist
·         Indigo had created a tough environment to enter due to its brand recognition and dominance over prices

Finial Verdict: Indigo is the type of Monopoly that is a firms responsible for the majority of sales in a market

Control of Essential Resources
·         The resources needed to make the books that indigo sells are not under indigo’s control
·         All these materials such as paper, printers and the ability to purchase the rights to books from publishers are available to most small book stores
·         Also there is an unlimited amount of areas where book stores are able to be created

Legal Barriers
·         There are no legal barriers preventing a book store from entering the market in Canada
·         There are also no financial restrictions placed on entering the book retail industry by the government
·         One major legal barrier that has allowed Indigo to thrive was the law preventing American owned book retail companies from entering the Canadian market
·         It was this law that originally prevented the large book stores like Borders from entering the Canadian market creating a demand for more books
·         This demand lead to the original success of Canada’s first major book retailers Indigo and Chapters
·         This Law still prevents American owned book sellers from breaking Canada’s monopoly

Pricing Strategy
·         Indigo prices its books significantly lower than any potential competitor in the material book industry would be able to
·         This was how Indigo was able to drive previous competitors out of the market
·         An example of another firm who was pushed out of the industry by this competitive pricing strategy was Litchman’s which filed for bankruptcy due to its inability to produce enough revenue while staying competitive with Indigo’s pricing
·         This was the largest independent bookstore in Canada and it failed to continue running, with this in mind it is clear that no other bookstores could compete with the corporate monster which is Indigo
·         Indigo is able to place these low prices because of their size
·         With huge amounts of retail locations across the country, Indigo has the ability to profit greatly off of smaller profit per unit amounts
·         Unlike other monopolistic firms, Indigo is unable to use their monopoly to increase the price of books due to the necessity for competitive pricing which keeps other firms out of the industry
·         This makes them less profitable than they would be if there were distinct entry barriers into the industry and Indigo was the only viable option
·         The firms average total cost is not a huge amount lower than other firms, but does instill a competitive advantage for Indigo

The loss of Indigo’s monopoly
·         Due to the up and coming Ebook technology, indigo’s monopoly over the book market has been almost fully taken away
·         Currently, a person is able to buy an Ebook for a significantly lower price than buying the hard copy of a book
·         This is understandable due to the lack of costs associated with producing an Ebook (simply licensing and software design)
·         The situation that indigo currently faces with the Ebook is very similar to the that independent firms previously faced with indigo
·         Because indigo would no longer be profitable selling their books at the low price which is offered for an Ebook, they are unable to price competitively and thus will lose a large chunk of consumers who are looking for a ‘better buy’
·         From a monopolistic point of view, Indigo could arguably still be a monopoly in the HARD COPY book market
·         Looking to the future, this market is not very profitable with increasing technology and access to Ebooks
·         The graph below displays the sales compared to the change in profit
·         As you can see, the sales of Indigo increased as the lowered prices attracted a larger quantity demanded, but the actual profit decreases due to the smaller profit per unit

In conclusion Indigo has enjoyed a successful decade as near perfect monopoly with control over the Canadian market for books through its ability to buy books in bulk, set prices and compete in a market were American firms cannot enter. However in recent years this monopoly has ceased to exist due to the introduction of Amazon in to the market as well as the mass digitalization of book which have made hard copy books near obsolete, much like how albums became obsolete when music went digital.  In the future Indigo will have to continue attempting to branch into different markets like the toys and games market as well as the gift market because their main product books is losing value fast.

Works Cited
"Our History." Coles. Indigo Books. Web. 13 Apr. 2012. <>.
News, CBC. "Lichtman's Files for Bankruptcy Protection." CBCnews. CBC/Radio Canada, 07 Mar. 2000. Web. 13 Apr. 2012. <>.
" Debuts in Canada | CTV News." CTV News. Web. 13 Apr. 2012. <>.
"Monopoly." Investopedia. Web. 13 Apr. 2012. <>.

Adam & Daniel (Google's Monopoly)

Background Information on Google

Google Inc. is an American internet and software company built around a search function. Google hosts and develops a number of other internet based services and products and has acquired a large number of firms in order to maintain control over internet users. Google was founded by Larry Page and Sergey Brin at Stanford University in 1998. In 2012 a study estimated that there were 33,077 employees working for Google. The year before the company was valued at US$ 37.905 billion.*1

History of Google:

Legal Barriers to Entry 

Within the online services business, Google has control over a huge number of other products and is most well-known company of their kind. Google mainly uses patents and acquisitions in order to keep others out of their industry. Throughout the years Google has been acquiring  companies in order to keep them out of their industry along with others in the business like Bing and Yahoo. In recent years Google’s acquisition of Motorola increased their patent block by 17,000. Although Google has not released the amount of patents which belong to them, it is projected that they have hundreds of thousands. Google’s position in the industry is extremely highly regarded and monopolistic. It is said that, “Google upholds the position as the dominant search engine in the world, with 65 percent of the total search market.”*2
On top of patented products, what keeps consumers coming back to Google is their competitive ability to develop infrastructure that guarantees clients fast and efficient services such as search, video streaming, maps, news, translation, advertising and much more. These services expand to meet the needs of the online community. Google strength lies in its constant state of rapid growth and adaptation, “Google's advantage over competitors is its rapid speed.”*3  
Google’s main claim to fame is its branding. Google has become one of the largest and most well-known companies in the world with zero advertisement. Google's popularity has been established solely from word of mouth over the years. This is an important aspect as to how Google has branded themselves. This strong brand name is another significant barrier to entry against competing companies because it is so hard to enter into a market where everyone knows and likes the product they currently use.

Control of Essential Resources:

Google’s innovative and top notch services continually adapt to what the online community desires. They have made it clear that their intellectual capital and programmers are the secret formula behind their success. The infrastructure that Google has created over the years can be credited to their programming team, who have become known as the best in the industry. Another essential resource which proves noteworthy is Google’s ever growing list of acquisitions. There are too many acquisitions to list but below there is a link which states all acquisitions since 2001. These acquisitions are essential to Google’s online dominance. In acquiring different sorts of companies, Google is able to use patents in which they couldn't use before. With each acquisition they acquire more intellectual capital and more patents.  

Pricing strategies:

Google’s revenue is derived from practices which completely ignore typical business strategy. Much like Facebook they provide top notch services for free, in order to gain high traffic. They then advertise to this massive base of users; ads are the foundation of Google’s profitability*4. They obtain and even create advertising space in the following ways.

AdSense is a free program that lets online site publishers earn revenue by displaying ads on a wide variety of content. Google takes advertisements and chooses which ones should go on which sites, paying site owners based on traffic.

Adwords sells the advertisements that show up beside search results. Advertisers pay per click and can choose where their ad appears.*5

Google acquired Double Click, an online “advertising serving” service, in 2008. Google charges a commission to takes ads and distribute them onto sites that they have contracts with. They pay these sites a portion of the revenue. Sites will chose this over independent advertising contracts because it is more consistent and reliable. They also provide users with the ability to make their own ads. Includes Adsense but adds on data management service for site owners.*6

Google has continued to expand the number of web properties they own and has consequently increased ad space available for sale. They own many websites including Youtube, Blogger, Deja, ect. They have also created advertising spaces through their own products such as Gmail, Google maps and many other Google services. All of these are heavily used and are therefore valuable advertising assets.*7

While searching:
Google has also focused on presenting its ads in a discrete way which separates them from other internet ads. In a Google search the ads are displayed in a very similar format to that of the normal search results. Take a search for books for example:


The first result that appears is Apple’s bookstore, then a Wikipedia explanation of what a book is and then Google’s free book library. The ad for Apple is very similar to the rest of the links. It is highlighted and identified as an ad but it has the same font, format and size as all the other links on the page. This establishes the ad as a viable source instead of a distraction. The sense of viability of the ads is strengthened by the fact that the viewers are searching for what they see ads about.

Has the Company been able to maintain its monopoly power? 

Google’s constant innovation and many acquisitions keep users on their sites and subject to their advertisements. The have a huge patent bases allowing them to access premium building blocks for their sites, they have the best intellectual capital and the most competitive advertising pricing strategy. These three elements allow them to hold their monopoly over others in the industry. 

In text citations:

*1 "Google." Wikipedia. Wikipedia, 13/04/2012. Web. 13 Apr 2012. <>.
*2 "How Google Maintains Its Competitive Advantage."Smart Advantage. Smart Advantage, 31/03/2010. Web. 13 Apr 2012. <>.
*3 See *1
*4 Moran, Mike. "What's Google's Stragety." Biznology . N.p., 2008. Web. 11 Apr 2012. <>. 
*5 "AdWords overview." Google Support. Google, 2012. Web. 12 Apr 2012. <>.
*6 "DoubleClick by Google." . Google, 2012. Web. 11 Apr 2012. <>.
*7 See *3
*8 Screenshot on Google search for books. <>

Works Cited
  5. <>
  7. <>.
  8. <
  9. <>
  10. <>

Pictures Cited
  1. Googlopoly:
  2. Copyright Sign:
  3. Screenshot: 

Brent Tuchner and Andrew Goldberg
Miss Robson
April 13, 2012

The National Football League (NFL) has been a topic of discussion over the past couple years. While football is the primary topic, another topic has been whether or not the NFL is a monopoly. The claim comes from the NFLPA, who claim that the NFL uses its league powers to prevent player salaries from escalating.  A monopoly is a commodity controlled by one party. In this case the commodity is professional football and the party is the NFL.  An example of a monopoly is the LCBO. In Ontario, alcohol can only be sold by the LCBO.  It is run by the government and it is the only licensed liquor supplier in Ontario. No other business or individual can sell liquor and therefore the prices are not set by the market.  The Ontario government is the party that controls the commodity—alcohol.  The NFL claims that it is not a monopoly and says that it is a cartel.  A cartel is a formal agreement among competing firms. It is a formal organization in which producers and manufacturers agree to fix prices, marketing and production. Cartels, unlike monopolies are legal.
The National Football League is the highest level of professional American football in the United States and to most it is considered the top professional football league in the world. The creation of the NFL dates back to the early 1900’s.  In 1920 several representatives of many professional American football leagues and independent teams founded the American Professional Football Association (APFA). The APFA contained only 11 teams and it was soon renamed the National Football League which now contains 32 teams. The teams are an amalgamation of eleven teams from the APFA, three teams from the All-America Football Conference and the remaining 10 teams were from American Football League. The NFL and AFL merged in 1960, greatly expanding the league.  This led to the creation of the Super Bowl, the Pro Bowl and other divisional championships. Today, the National Football League is among the most attended domestic sports league in the world with an average attendance per game of 66,960 fans.
There is heated debate in the business and legal community as to whether the NFL is a monopoly or a cartel. In the private sector monopolies are illegal and therefore the National Football League claims it is a cartel. It is a formal organization with 32 separate companies that are free and operate under a governing body (the NFL).   The league allows teams the freedom to set their price for the tickets or anything sold within their stadium. For example, any NFL owner can charge as much or as little as they want (parking ticket, souvenirs, refreshments, etc.).  Additionally, the league allows teams to compete for players.  Teams are not allowed to get together and determine a salary cap for a player or a position. The NFL is an open market and the owner is allowed to determine a players worth.  As a result, the NFL claims that it is not a monopoly and in fact, a cartel.
There are, however some who believe that the NFL is in fact a monopoly. In mid-June 2009, American Needle sued the National Football League for being a monopoly. American Needle Inc. was one of the former hat suppliers of the NFL teams.  There contract was with some of the teams and was negotiated on a team by team basis.  This relationship existed until the NFL signed a contract with Reebok.  The Reebok contract was for the supply of hats for every NFL team.  As this contract was league wide, it eliminated all American Needle business with the NFL. American Needle sued the NFL and claimed the league violated the antitrust laws, acting as a monopoly.  Needle stated that all 32 teams worked together to freeze it out of the NFL-licensed hat making business, signing an exclusive 10-year license with Reebok. Another reason people may view the NFL as a monopoly is because of its television license. The television rights to broadcast the NFL games are the most lucrative and expensive rights of any American sport. Currently, the NFL has made agreements and signed contracts with television networks such as CBS ($3.73B), NBC ($3.6B) and Fox ($4.27B) as well as ESPN ($8.8B) which is a combined total of $20.4 billion to broadcast all NFL games. These agreements and contracts come into question when deciding whether the National Football League is in fact a monopoly or not. With these two situations it seems as though the NFL has taken matters into their own hands and signed contracts and made agreements which controls the entire 32 teams instead of each team being individual competing corporations.
Why can’t each team sign with whichever network it chooses? Why can’t each team be sponsored by whoever they want? Why isn’t each team making unilateral decisions?  These questions still remain and given the evidence given above, there are many who believe that what the NFL is a monopoly and in violation of the Sherman Antitrust Act.  Without the antitrust restraint, the league would be able to kill free agency and restrain the competitive bidding amongst teams for the best players and coaches. It would also allow the league to dictate the prices and prevent teams in the same market for competing for fans by offering discounts. In conclusion, it would allow teams to act in concert to require that all sales of tickets in the secondary market be channeled through a brokerage system owned and licensed by the league.
Now this brings us to one last question: Is the NFL a monopoly or not? How can the NFL change their course of actions so that they are still able to sign agreements and take matters into their own hand without being criticized, and accused of being a monopoly? The answer to our final question is that the courts have declared that the NFL is a cartel but in some situations can be viewed as a monopoly.  Each team has control over the way they operate, what they sell at concessions with the exception of clothing articles and TV contracts.  In our opinion, the NFL clearly controls the commodity of football and is therefore, a modern day monopoly. 




By: Sam Sutcliffe and Timmy Robinson

Who is Luxottica?

Luxottica is the world’s largest eyewear company.  It produces both sunglasses and prescription frames for a multitude of designer brands including Oakley and Ray-Ban.  The firm was started by Leonardo Del Vecchio in 1961 in the north of Italy.  Del Veccchio lived in Milan and had been trained as a tool mater, but soon turned to metal working and the production of spectacle parts (Group, Comapany History ).  In 1961 he moved to Belluno, the home of the Italian eyewear industry, where he formed Luxottica as one of the founding partners.  The firm began by producing and selling complete eyeglass frames under the Luxottica brand, a move that proved to be profitable.  Convinced of the need for vertical integration, Luxottica began purchasing distribution companies while setting up international subsidiaries in order to expand internationally.  In 1988 they began negotiating licensing deals with many sunglass designers (Group, Comapany History ).  The company currently has the eleven prestigious house brands, whilst creating eyewear under license for fifteen designer labels.  Through the vertical integrate process; they own many retail stores for their goods including the Sunglass Hut, Lens Crafters and Ilori (Group, Comapany History ).

Currently, 64% of the adult population is in need of vision correction, of that, 63% of those who need vision correction, use glasses as opposed to contacts or vision correction surgery.  Eyeglasses seem to be a near inelastic good, with Luxottica providing the supply for the ever constant demand of society.  (America, 2006 )


One of the reasons that Luxottica has created a near monopoly over the sunglass industry is due to its licensing agreements with sunglass designers.  The firm began by producing and selling complete eyeglass frames under the Luxottica brand.  In 1988, the company began negotiating licensing agreements for designer brands like Oakley to Ray Bans.  Luxottica was the first sunglass company to sign licensing agreements with designers, giving them a significant advantage over the competitors.   

Luxottica expanded on this strategy and began aggressively seeking out and negotiating licensing agreements with many major sunglass designers.  Currently, the company has a host of house brands, including Arnette, K & L, Luxottica, Mosley Tribes, Oakley, Oliver Peoples, Person, Ray-Ban, Revo, Sferoflex and Vogue.  Whilst the company creates eyewear under license for designer labels, such as Brooks Brothers, Bulgari, Burberry, Chanel, Chaps, Club Monaco, D & G, DKNY, Miu Miu, Ralph Lauren, Prada, Tiffany & Co., and Versace.  Luxottica’s contracts with the major designers give it a dominant position in the market. 

Competitive pricing strategies 

Luxottica has worked to maintain an effective degree of monopoly over the sunglass industry through its use of pricing strategy.  The effective pricing strategy can be attributed to two key characteristic, vertical integration and computerization.  Convinced of the need for vertical integration, Luxottica began purchasing distribution companies while setting up international subsidiaries and retail stores in order to expand internationally.  This gave Luxottica complete control over the product from production to retail. 

Del Vecchio pushed the implementation of computerization, resulting with the integration in all facets of the industry’s process, from design to manufacturing to inventory control.  This early application gave Luxottica a significant cost advantage over its competitors, allowing it to reduce prices and undercut its competition.  A second attribute to the computerization was its ability to make small production runs more efficient, this helped the company adapt to the ever changing fashion trends that govern the industry.  Their ability to quickly adapt to the market defines them as an elastic supplier, allowing them to take advantage of changes in the markets demand. 

Economy of Scale
Luxottica is an international giant, with sales of over $900 million in 2011 and a profit of $237 million. Luxottica uses its size to lower its production costs to levels that very few other firms can compete with. The industry is nearly a monopoly because it’s virtually impossible for new firms to enter the industry and compete with the low costs of production costs and established infrastructure. Luxottica has 256 million in PPE in 2011, which it uses to specialize production and increase efficiency. Luxottica’s large market share of the glasses retail market also increases their control of the market and price.

Extent of Monopoly

The following is a break down between Luxottica and its closest competitor.  Luxottica has a share price that is $30 higher, nearly four hundred million more shares and a much larger market capital.  (Finance, Safilo Group SpA , 2012 ) (Finance, Luxottica Group SpA (ADR) , 2012 )

Market Stats
Share Price
# of Shares
462 Million
56.8 Million
Market Capital
15.74 Billon
280.59 Million
P/E Ratios

(Finance, Safilo Group SpA , 2012 ) (Finance, Luxottica Group SpA (ADR) , 2012 )

Does Luxottica still hold a monopoly?
                Luxottica still holds a monopoly over the sunglass market, unfortunately due to an increase in cheap overseas labour, their effective pricing strategy has lost its competitiveness.  They still hold a strong grasp on the licensing agreements with individual designers, giving them a strong hold over the market.  With their size and financial power, they are the most formidable force in the sunglass market.

Works Cited

America, V. C. (2006 ). Vision facts and statistics . Retrieved April 8 , 2012 , from Medical Eye Services :
Finance, G. (2012 , April 08). Luxottica Group SpA (ADR) . Retrieved April 08 , 2012 , from Google Finance :
Finance, G. (2012 , April 08). Safilo Group SpA . Retrieved April 08, 2012 , from Google Finance :
Group, L. (2011, June 30 ). Financial Statments as of June 30, 2011 . Retrieved April 09 , 2012 , from Luxottica :
Group, L. (n.d.). Comapany History . Retrieved April 8, 2012 , from Luxottica :