Last year Sen. Elizabeth Warren (D-Mass.) threw down the gauntlet in antitrust enforcement. “Today, in America, competition is dying,” Warren said. “Consolidation and concentration are on the rise in sector after sector. Concentration threatens our markets, threatens our economy, and threatens our democracy.”
Today, the merger of Luxottica and Essilor threatens to create a vision care monopoly and you don’t need a corrected prescription to clearly see it will harm consumers with higher prices and less choice. The question remains: When will we be tough enough to prevent harmful consolidation?
{mosads}It’s easy to see why the merger of Essilor and Luxottica should be denied. The merger would combine the world’s largest eyewear company with the world’s largest manufacturer of optical lenses. But that is an oversimplification. The merger also involves the U.S.’s second largest vision insurance company, owned by Luxottica, and the U.S.’s largest optical retailer, composed of many companies all owned by Luxottica.
That’s still not the whole story, the combined Essilor and Luxottica will exert control over 83 percent of optometrists through Luxottica’s EyeMed Vision Care company. EyeMed has 43 million members and is accepted at over 30,000 U.S. optometrists. Luxottica uses this vision benefits company largely to steer patients towards Luxottica’s own products.
But wait, there’s more. Luxottica has been featured twice in the news for its ability to command high prices and bully competitors. In 2012, 60 Minutes ran a story on the false choice in eyeglass frames, explaining that most brands you see in the stores are owned by the same company. The reporter attributed sky-high prices to the lack of choices. And John Oliver ran a piece this year that explained how Luxottica used its vertical market power to pressure Oakley into selling its company after a dispute with Luxottica over pricing.
Even the Democratic Party has signaled out this merger as being dangerous for consumers. Senate Democrats launched their A Better Deal platform with an explicit mention of the Essilor/Luxottica merger as a merger that would “harm consumers, workers, and competition.” Their white paper points out “the current average price of eyeglasses is now at $400, a cost in line with an iPad, and is steadily rising.”
A combined Luxottica and Essilor company would have enormous power over every stage of producing and selling eyewear. Luxottica in particular has pursued a strategy of gobbling up brands and presenting consumers with false choices. Altogether, Luxottica has nine house brands and is licensed to produce and distribute another 21 more. These brands include Ray-Ban, Oakley, Oliver Peoples, Georgio Armani, Coach, DKNY, Prada, Ralph Lauren, Versace and DKNY. Luxottica also owns over 9,000 stores, including Sunglass Hut, LensCrafters, Pearle Vision, Sears Optical, and Target Optical.
Things are already bad. Since Luxottica bought Ray-Ban almost 20 years ago, the average selling price has gone up, and so have Luxottica’s profit margins. The merger could only make things worse.
Some might suggest the merger raises few concerns because it is vertical, meaning that the companies are mostly on different levels of the supply chain. Essilor makes lenses and Luxottica makes frames. In early antitrust policy there were complaints that we over-enforced against these types of mergers, and economists published evidence that vertical mergers can actually provide some benefits. This led to a massive pendulum swing, but with the DOJ’s challenge to the AT&T Time Warner merger it appears the pendulum is swinging backwards.
All it takes is an antitrust enforcer willing to fight and good evidence, and here there is a lot of good evidence that this merger will harm consumers and competition.
Consumers need real choice, not fake choice in the eyeglass market. Consumers also need real competition to curb the sky-high prices of eyeglasses. They will get neither of this merger is permitted to go through. We’ve already seen the E.U. get tough on this merger — they opened a full-scale investigation in September. It is now time for the U.S. to step up to the plate.
David Balto is an antitrust attorney based in Washington, D.C.. He previously served as policy director at the Federal Trade Commission and as an attorney in the Justice Department’s Antitrust Division. He is an expert in antitrust, consumer protection, financial services, intellectual property and health care competition.