Wonks Potato Chip Industry
Misti Hubbard
ECO204: Principles of Microeconomics
Instructor: Susan Didriksen

Friday, August 03, 2012

In this essay I will be covering the benefits of the new monopoly, and the changes which will occur in price and output of the product in this particular type of market structure; and market structure that will most benefit the Wonks potato chip industry. The potato chip industry in the northwest was running in competitive equilibrium in 2007. In 2008 two lawyers quietly bought all the firms and created a monopolistic company called “Wonks” in order for Wonks to operate efficiently, Wonk’s had to hire a management consulting firm which then estimated a different long-run competitive equilibrium. Economist divided the market conditions into four major categories: (1) monopoly, (2) pure competition, (3) monopolistic competitive, (4) oligopoly. In a monopoly, a single business or company supplies a product and or service for which buyers cannot find a substitute. A Monopoly may arise when one company can supply a given commodity more cheaply than two more companies can. Our textbook defines a monopoly as “an industry composed of only once firm that produces a product for which there are no close substitutes and in which significant barriers exist to prevent new firms from entering the industry” (Case, 2009). By purchasing all firms involved with the potato chip industry the two lawyers have created a pure monopoly. A pure monopoly is an industry with a single firm that produces a product for which there are no close substitutes and in which significant barriers to entry prevent other firms from entering the industry to compete for profits” (Case, 2009). By seizing control of the market, the firm would now control their position on the market demand curve. They would control everything. With that being said, Potato chips are a unique snack while there are replacements none are really the same. As for obstacles to new firms attempting to enter the market this would require a large capital investment that would be very risky. "Wonks" could increase production and reduce prices making it hard in not impossible for the new company to get a return equal to the market rate. A goal in business with a simple perspective is to keep one foot in front of the other and always be one step ahead of competition. In order to stay one step ahead of competition businesses have to maintain a competitive edge in order to keep prices low and profits high. In order to do this production costs must be similar to competitors or cheaper and methods of production should be simpler as well. We take the potato chip industry for example: Lays brand Potato chips are mass produced and have a pretty competitive market. Kettle chips and Ruffles are some of Lays competitors. Our book defines equilibrium in a market as “When supply meets demand of the product and there is no excess.”(Case, Fair, & Oster, 2009)
Lay's Bistro Gourmet Potato Chips will be available in four varieties: Bistro Classic, Sharp Cheddar & Jalapeno, Roasted Garlic & Herb, and Apple wood BBQ & Smoked Cheddar. The four varieties will be available in take home 9 oz. packages ($2.59) with Lay's Bistro Gourmet Apple wood BBQ & Smoked Cheddar and Lay's Bistro Gourmet Sharp Cheddar & Jalapeno also available in single serve 2.5 oz. packages ($0.99). This premium potato chip will be launched nationally in late April. Lay's is the brand name for a number of potato chip varieties as well as the name of the company that founded the chip brand in 1938. Lay's chips are marketed as a division of Frito-Lay, a company owned by PepsiCo Inc. since 1965. Other brands in the Frito-Lay group include Fritos, Doritos, Ruffles, Cheetos and Rold Gold pretzels. Contents In 1932 salesman Herman W. Lay opened a snack food operation in Nashville, Tennessee and, in 1938; he purchased the Atlanta, Georgia potato chip manufacturer "Barrett Food Company," renaming it "H.W. Lay & Company. Lay crisscrossed the Southern United States selling the product from the trunk of his car. In 1942 Lay’s introduced the first continuous potato processor, resulting in the first large-scale production of the product.
The business shortened its name to "the Lay's Company" in 1944 and became the first Snack food manufacturer to purchase television commercials, with Bert Lahr as a celebrity spokesman.
During the development of Lay's Bistro Gourmet, Frito-Lay expert food scientists reported that the proprietary Bistro Gourmet potatoes are sliced slightly thicker than regular potato chips. The slices are then carefully marinated before frying to increase the crunch in the unique texture. Next, the potato chips are fried and then dried in preparation for seasoning. Finally, these premium potato chips are seasoned twice while still warm. His signature line, "so crisp you can hear the freshness," became the chips' first slogan along with "de-Lay-sious!" As the popular commercials aired during the 1950s, Lay's went national in its marketing and was soon supplying product throughout the United States.
In 1961, the Frito Company founded by Elmer Dolin and Lay's merged to form Frito-Lay Inc., a snack food giant with combined sales of over $127 million annually, the largest of any manufacturer. Shortly thereafter, Lays introduced its best-known slogan"betcha you can't eat just one. Sales of the chips became international, with marketing assisted by a number of celebrity endorsers. In 1965, Frito-Lay merged with the Pepsi Cola Company to form PepsiCo, Inc. and a barbecue version of the chips appeared on grocery shelves. A new formulation of chip was introduced in 1991 that was crisper and kept fresher longer. Government will benefit because government monopolies are a convenient source of revenue. The government is the only entity that can force other companies out of a market. This “force out” can definitely cause controversy in the marketplace. The owners of Wonks can push the government to impose restrictions on competition. If other business owners in the market found out about this, they would use as much negative publicity as possible. This would provide an entry barrier into the market.
Also low prices can reduce the profit margins for new industries and act as what economists could call an entry barrier as well. Let’s say Wonks has a patent on a cooking method for their potato chips which is one of their techniques, a secret blend of spices to improve the product it offers, or a patent on the growing method of the potato. In conclusion: I found that while wonks was a potato chip industry that was around they are not as popular as the lay’s potato chip or even kettle. Wonk’s is a northwestern potato chip industry that you can only find on the northwest and with the Lay’s as a snack company has been around since 1932 and they were not only known for their chips.

References

Case, K.E., Fair, R.C., and Oster, S.E. (2009) Principles of Microeconomics (9th ed). Upper Saddle River, New Jersey: Pearson Prentice Hall. Lay's potato chips, the world's favorite snack chip, goes gourmet! (2001, Apr 12). PR Newswire, pp. 1-1. Retrieved from http://search.proquest.com/docview/447963299?accountid=32521
Lay's potato chips cuts saturated fat by more than half; America’s favorite potato chip announces move to NuSun(TM) sunflower oil. (2006, May 03). PR Newswire, pp. n/a-n/a. Retrieved from http://search.proquest.com/docview/451187938?accountid=32521
Holmes, B. (1992, May 07). Frito-Lay re-invents its lay's and ruffles potato chips -- targets upcoming peak potato chip selling season. PR Newswire, pp. 1-1. Retrieved from http://search.proquest.com/docview/450244297?accountid=32521