Photo by Zoshua Colah on Unsplash
The Hermès Birkin, which recently sold for over $450,000 at auction, is notoriously the most expensive handbag on the market—and the epitome of luxury handbags. Since its debut in 1984, the price of a Birkin bag has seen a meteoric rise. Initially, one could purchase a Birkin for an average of $2,000, but today the starting price is closer to $8,500, with an upward price at a staggering $2,000,000. This extraordinary escalation in value reflects not only the allure of the brand but also the unique market dynamics in the luxury sector. While some level of competition and exclusivity is expected within the luxury handbag market, such a rapid price growth is raising concerns of anti-commercial behavior, and luxury handbag brands are now facing increasing scrutiny.
FTC v. Tapestry and Cavalleri v. Hermès International are two examples of pushback against the swell of the luxury handbag market—both challenging luxury handbag companies for antitrust behavior, monopolistic competition, and consumer coercion. Additionally, new Federal Trade Commission (FTC) guidelines create increasing pressure on companies to avoid anti-competitive behavior while remaining aggressive in the market. The scrutiny of these antitrust concerns arises from a general idea that the luxury handbag market is becoming too exclusive, eroding the accessibility of luxury handbags. However, brands are pushing back against this sentiment, asserting that luxury is inherently exclusive and coercion comes from consumer demand, not monopolistic tactics. Furthermore, brands point to the secondhand market’s growth as proof that brand conglomeration or company policy does not hinder consumer freedom. Ultimately, luxury handbag brands assert that the exponential price increase is a matter of frenzied market trends, not antitrust activity.
To the great dismay of those who wish to “buy in” to the luxury handbag market, we assert that accessible luxury is a myth. By analyzing the history of antitrust law and examining its current application to luxury handbag companies, we find that current attempts to curtail soaring handbag prices through legal recourse is likely a meritless pursuit. While antitrust concerns are relevant to ensure free market practices, certain industries with absurd prices are merely industries with absurd prices; nothing more.
History of Antitrust Law
Antitrust laws are in place in almost every country to prevent certain types of business practices that are deemed anti-competitive. Courts in the United States have applied these laws to maintain competition, incentivize business efficiency, sustain low prices, produce high-quality goods, and foster innovation.
In 1890, Congress passed the Sherman Act as the first antitrust law aimed at preventing any “monopolization, attempted monopolization, or conspiracy to monopolize.” Seemingly broad, the Act only restricted trade that was deemed “unreasonable.” Standard Oil Co. of New Jersey v. United States marked the first test of the Act. In 1911, the U.S. Supreme Court deemed John D. Rockefeller’s Standard Oil trust a monopoly. The Court ordered it to be broken into thirty-four separate companies, setting a precedent for future antitrust enforcement.
In 1914, Congress passed the Clayton Antitrust Act to further strengthen antitrust laws. The Act prohibited price discrimination, exclusive dealings, and mergers that would substantially reduce competition or create monopolies. That same year, the FTC was established. Over sixty years later, the Hart-Scott-Rodino Act of 1976 required companies to notify the government when it planned a merger, allowing the FTC and other regulatory bodies to assess the potential impact on competition.
As businesses and trade expanded, the antitrust landscape evolved. The FTC and the Department of Justice (DOJ) began to closely scrutinize mergers and business practices to prevent monopolies and ensure competitive markets. However, enforcement often depends on political pressures; each administration shapes its regulations to align either with aggressive regulation or more lenient enforcement under the consumer welfare standard.
The Present FTC Guidelines:
In December 2023, the FTC and the Antitrust Division of the DOJ released the final 2023 Merger Guidelines, highlighting significant changes in merger enforcement. These changes reflect an interventionist approach to merger enforcement—a central feature of the Biden administration’s antitrust policy. These guidelines provide frameworks used to evaluate potential antitrust violations. Notably, two new changes create additional complications for luxury goods companies in high-end markets.
First, the new guidelines lower the thresholds for presuming a merger is anti-competitive. To do this, the Herfindahl-Hirschman Index (HHI) and market share thresholds are lowered when used to assess mergers. As a result, any merger creating a firm with over 30% market share in any relevant market and a small increase in HHI will be presumed to violate Section 7 of the Clayton Act, even if one party has a de minimis market share or the relevant market is fragmented. This change significantly impacts larger luxury handbag brands that already hold substantial market shares.
Second, several new guidelines enable regulatory agencies to tackle competitive concerns outside the traditional horizontal or vertical merger frameworks. This includes aggregating multiple small acquisitions, preventing dominant firms from extending their influence on other markets, and examining how competition in labor markets affects workplace quality. While these changes seem positive for brand quality and the prevention of cross-market monopolies, the changes could lead to increased scrutiny of proposed deals. This may restrict luxury handbag companies aiming to maintain or expand its position in related luxury markets. Although the guidelines may impose significant constraints on the growth of luxury brands, including handbag sellers, it does not carry legal effect unless federal courts choose to apply it.
While these new guidelines do not directly attack the luxury handbag market, it has set the stage for several lawsuits to challenge the ever-growing companies at the top of the luxury handbag market. However, the industry seems to remain unphased with the global luxury handbag market reaching 31.87 billion dollars last year.
FTC v. Tapestry
On April 22, 2024, the FTC sued to block Tapestry’s $8.5 billion acquisition of Capri, which would result in a conglomeration of Coach, Kate Spade, Michael Kors, and Versace. At the center of the complaint is concern for “accessible luxury.” While Tapestry and Capri compete in many industries, the main source of competition is between Coach and Michael Kors. Before this acquisition, Tapestry engaged in a decade-long serial acquisition M&A strategy. As a result, the FTC claims that the large acquisition will significantly harm competition, causing higher prices for consumers, reduced innovation, and a decline in employee wages and workplace benefits.
In response, Tapestry’s Chief Executive Joanee Crevoiserat told reporters, “It’s quite clear to us that they don’t understand how consumers shop today and they don’t understand the dynamics of a marketplace with no barriers to entry, constant influx of new competitors.” This sentiment reflects Tapestry and Capri’s most recent filing, following an FTC request in support of a temporary injunction against the deal. Tapestry and Capri assert that the FTC, through its expert witness Dr. Loren Smith, misapplied specific economic and legal tests in defining the relevant market, specifically the "accessible luxury" handbag market. According to Tapestry and Capri, accessible luxury is a myth.
Tapestry and Capri emphasize the “hypercompetitive” luxury handbag market and the role of “brand heat,” which focuses not on the pricing or variety of a product (the factors highlighted by the FTC) but rather the virality of trends in luxury handbags. Virality is seen when consumers rapidly latch onto certain handbags, regardless of branding or categories. Consumers of luxury handbags “cross-shop across a wide spectrum of price points and brands,” meaning that the category of “accessible luxury” is not a separate relevant market. In essence, consumers are not limited to purchases within the luxury market. Therefore, the conglomeration of brands such as Coach and Michael Kors will not preclude sales within the broader market of handbags. The companies point out the growth in the secondary market ensures consumer options stay available and prices in brands’ products are controlled.
Credit: FreePik
While concerns for monopolies and anti-consumer results are warranted, the reality is that consumers actively navigate a diverse array of choices, driven by brand prestige and the allure of scarcity, rather than being confined to rigid market categories. The notion of “accessible luxury” is a myth. The luxury industry operates within a framework where those prices reflect more than mere functionality—it embodies the very essence of luxury. It is an industry driven by aspiration and status, where the unattainability of certain items adds to their allure.
Cavalleri et al. v. Hermès International
Parallel to the FTC’s scrutiny of the Tapestry-Capri merger, Cavalleri et al. v. Hermès International unveils allegations of consumer coercion in the luxury handbag industry. In March 2024, California residents Tina Cavalleri and Mark Glinoga filed a class-action lawsuit against Hermès International and its subsidiary, Hermès of Paris, Inc., alleging Hermès’ business and compensation structure violates the Sherman Act, Cartwright Act, and California’s Unfair Competition Law.
Inspired by Jane Birkin, Hermès’ Birkin bag has stood as a symbol of exclusivity and wealth since its creation in 1984. The bag’s allure lies in its scarcity and the difficulty of acquiring one. Furthermore, Hermès holds a trademark on its Birkin bag, which reinforces its exclusive rights to control the market for the iconic bag. Hermès maintains an ironclad grip on the Birkin bag’s desirability and exclusivity by preventing other companies from producing similar bags under the same name or design.
Credit: AFP
Cavalleri et al. assert that Hermès implements a “tied-market” strategy. According to the complaint, sales associates sell other Hermès luxury ancillary products—such as shoes, scarves, belts, jewelry, and home goods—as a prerequisite to offering customers the opportunity to purchase a Birkin bag. Plaintiffs assert Hermès’ strategy allegedly coerces shoppers into buying additional goods they may not want solely to gain access to the coveted handbag. Consumers must allegedly build a “purchase history” of these ancillary products before being considered eligible, at the discretion of the Hermès store managers and sales associates, to buy a Birkin bag. An Hermès sales associate must personally invite prospective Birkin buyers to acquire a bag.
Hermès allegedly reinforces this tying strategy through its compensation structure. Unlike other Hermès products, where sales associates typically earn a 3% commission, sales associates do not receive commissions on the sale of Birkin bags. Sales associates are incentivized to encourage customers to purchase ancillary products to build a “purchase history,” to demonstrate loyalty to the French fashion house before being invited to buy a Birkin bag. As asserted in the lawsuit, “Hermès "use[s] Birkin handbags as a way to coerce consumers to purchase ancillary products.”
The FTC holds that tying strategies can violate antitrust laws when the seller has sufficient market power in the tying product. In this case, the Plaintiffs argue that the Birkin bag’s unique market position—strengthened by the Hermès trademark—gives Hermès significant market power. They allege that Hermès exploits this power to boost sales of other products, distorting competition in the market for luxury goods and undermining consumer choice.
In response, Hermès dismissed the allegations as “far-fetched” and “factually and legally unfounded.” The company argues shoppers are not required to purchase other Hermès products to be “eligible” to buy a Birkin bag. Even if such a requirement existed, Hermès contends doing so would not violate antitrust laws, as the complaint fails to demonstrate the company has unlawful “market power” or that competition has been harmed. According to Hermès, “antitrust laws do not punish companies for creating better, more desirable products than anyone else.” Hermès alleges that the exclusivity and demand for its products result from the quality and prestige, stating that “Hermès has always had (and always will have) iconic products that have built a loyal following.” Hermès’ response underscores that exclusivity is inherent within the “luxury market,” perhaps even attempting to democratize it misinterprets its very definition. To Hermès, it appears that purchasing ancillary products is not a “coercive tactic” but a part of a tailored luxury experience consumers willingly embrace to espouse wealth and exclusivity. According to Personalized Retail Experiences Studies, “70% of Hermès customers report a more satisfying shopping experience due to the brand’s commitment to personalization and attention to detail during consultations.” Buying a Birkin bag directly from a Hermès boutique offers an immersive, luxury experience through one-on-one consultations and private shopping events; however, it is not the only way consumers can acquire a bag.
Consumers have alternative avenues to purchase a Birkin bag beyond buying directly from Hermès. The secondhand market, with platforms like The RealReal, allows customers to acquire the Birkin bag without engaging in any of the alleged purchasing prerequisites. In fact, The RealReal’s 2023 Luxury Resale Report revealed that overall demand for vintage bags is up 300% since 2020. According to the report, Hermès holds the highest resale value. Birkin purses are worth 127% of its original price. Accessibility through resale channels undermines the Plaintiff’s claim that consumers are “tricked” or even “forced” into additional purchases. The secondhand luxury market not only coexists peacefully with luxury brands but also provides more entry points for consumers. Moreover, the secondhand market increases consumer confidence in investing in luxury goods, as there is a market for resale if they choose to part with it later. While the lawsuit correctly identifies the sales tactics of Hermès, it is unclear which party will prevail, as the harm alleged may be insufficient to substantiate their claim. This further bolsters the question—is “affordable luxury” a myth?
Legal Implications of Tapestry and Hermès
The challenge for luxury retail brands on the legal front continues to increase as it faces scrutiny on two sides: antitrust enforcement and consumer protections. Mergers and acquisitions, a common tool for growth in the luxury market, need to be approached with caution to comply with antitrust laws. At the same time, company policies to cultivate its exclusivity and branding may be deemed as manipulative or coercive. In both situations, luxury brands must carefully balance its strategies for growth and profitability with compliance requirements. The FTC’s aggressive stance against monopolies signals that any mergers between luxury brands will face intense scrutiny, likely leading to more blocked deals. Furthermore, luxury brand buyers are increasingly weary of manipulative sales tactics, particularly in an era focused on transparency and accessibility.
Going forward, luxury brands must adapt to regulatory pressures without compromising its exclusivity. Rather than relying on mergers or coercive sales tactics, these brands are confronted with the reality that maintaining its allure requires navigating the inherent tension between profitability and compliance. The luxury sector must recognize the notion that accessible luxury is a myth—true exclusivity is costly. Therefore, any attempts to make luxury products broadly available are often at odds with legal and market realities.
*The views expressed in this article do not represent the views of Santa Clara University.
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