Finding Unique Market Spaces and Situational Monopolies
had created a blue ocean marketplace where the other PC competitors were no longer relevant. By August 2010, Apple had become the most valuable technology stock in the world and then became the company with the biggest market capitalization in the world (Crum, n.d.).
The Four-Action Framework A first attempt at plotting a company’s value curve might disappoint if the curve is too similar to that of the industry. This means, of course, that the company is not at all or not sufficiently differ- entiated. The four-action framework is designed to stimulate thinking to find ways to differenti- ate the company and even ways of competing that have not been contemplated by the industry, which is to say, a blue ocean.
Situational Monopoly The conventional mental model of a monopoly is a company that accounts for 100% of sales in a given industry; that is the definition taught in every introductory economics course. Governments created the majority of such monopolies. In Britain, for example, in the past the state ran the railroads, telecommunications, airlines, health care, and other major industries. Most have since been privatized, except for the National Health System (Abraham, 1974).
Notwithstanding the traditional definition, a form of monopoly exists that most successful com- panies operate at different phases of their operation. Lele termed this a situational monopoly or monopoly space, and it exists because a company either creates or takes advantage of a situation to charge monopoly prices. It is “an ownable space for a useful period of time” and is natural, legal, and surprisingly common (2005, p. 25). Consider the high concessions prices at movie the- aters and sports arenas. Vendors are able to charge inflated prices because the facilities allow only food and drink that was purchased there to be consumed on the premises. Similarly, consumers are forced to pay high prices for brand-name replacement-ink cartridges for printers if the war- ranty is not to be voided. In the personal-care-products business one can see this same situation with replacement-razor blades.
Companies can create a situational monopoly through innovative business practices. Dell was able to enjoy a 10-year monopoly when it was the only computer manufacturer selling made-to-order PCs for the corporate market. Enterprise Rent-A-Car grew to be the largest car-rental company in the United States because it is the only car-rental company that caters to people for local, non- travel-related needs such as renting a car when their own car is being serviced or repaired, and it will pick you up and drop you off at the end (Lele, 2005).
To discover where your company’s next monopoly space might be, look for a pattern and a situa- tion where customers want something that existing competitors can’t or won’t provide. In other words, look for an emerging need, incumbent inertia, and new capability. All three conditions must be present for a monopoly space to be opening up (Lele, 2005).
Because owning a monopoly space is legal and produces high profits, every company should want to look for one and hang on to it as long as possible. In fact, Lele says, a company’s chief respon- sibility should be to find its next monopoly space. That should be the goal, and how to get there should be the strategy (2005).
CHAPTER 3Section 3.3 Finding Unique Market Spaces and Situational Monopolies
Case Study The Merger of Whole Foods and Wild Oats: Shattering the Situational Monopoly
In early 2007, the premium organic and natural-foods grocer Whole Foods proposed a purchase of competitor Wild Oats’ 190 stores. Subsequently, the Federal Trade Commission challenged the deal, claiming that because Whole Foods and Wild Oats were the “only two nationwide operators of pre- mium natural and organic supermarkets in the United States,” the purchase would enable the cre- ation of a monopoly in this market.
In his ruling against the FTC, United States District Judge Paul L. Friedman highlighted the ways in which contemporary market dynamics shatter monopolies. Essentially, although Whole Foods and Wild Oats were the only supermarkets dedicated to the sale of natural and organic products, Friedman pointed out that other national supermarket chains such as Wegmans, Safeway, Publix, Kroger, Supervalu (and subsequently, even Walmart) have invested heavily to compete in this market. Court documents even referred to statements made by Whole Foods that the chain had reduced prices in order to be com- petitive with some of these other mainstream supermarkets’ natural and organic offerings.
Although Whole Foods and Wild Oats together at one point had a monopoly space on premium natural and organic groceries, other supermarkets had realigned their strategies to enter and compete in this market. “To put it colloquially,” Friedman wrote, “this train has already left the station” (Federal Trade Commission v. Whole Foods Market, Inc., and Wild Oats Markets, Inc., p. 37).
The Whole Foods/Wild Oats merger calls into question the staying power of monopolies and situ- ational monopolies. The current economy, enabled by globalization, quick and flexible decision mak- ing (often facilitated by digital media), and the need to be adaptive and dynamic in business practices may extinguish these notions. What do you think?
Questions for Critical Thinking and Engagement 1. In our contemporary era of business and organizing, is it possible for a true monopoly to
develop? If yes, in what industries and why? If no, why not? What about a situational monopoly? 2. What factors made it desirable and easier for mainstream supermarkets to enter the domain of
Whole Foods/Wild Oats than in the past? 3. Can the creation of a situational monopoly be strategic, or a byproduct of circumstances? 4. Do organizations with situational monopolies spend resources to keep others out of the market?
Why or why not? 5. Identify another example of a once situational monopoly that now splits market share or that has
exited the market entirely. Describe the circumstances either in writing or during class discus- sion, as directed by your instructor.
Discussion Questions 1. Which concept is more useful, in your opinion, in trying to find a unique market space with no
competitors—the strategy canvas and four-action framework or a situational monopoly? Give reasons for your answer.
2. Do you think there are differences between the benefits of a highly differentiated strategy and being in a monopoly space? If so, what are they? If not, why not?