Challenging Hermès: the exclusivity of the Birkin Bag

 

Hermès is notorious in the luxury goods industry for producing the most exclusive and coveted handbag: the Birkin. However, where some find the exclusivity of the Birkin vital to its extreme market value, others view it as anti-competitive and an unacceptable manner to sell goods in a market with an abundance of consumers. Some have sued Hermès because of the Birkin bag, but is Hermès really anti-competitive?

The allure of scarcity

Hermès has employed techniques of deliberate scarcity, to maintain brand exclusivity, justifying their strategy by referring to their exceptional craftsmanship (Li, 2024). The brand’s ability to create excess demand through deliberate scarcity is profitable and created a flourishing secondary market for the bags. Resale values for the Birkin have outpaced gold over the last 10 years (Li, 2024).

While handbags aren’t the most traditional investment piece, the Hermès Birkin bag saw returns of 38% on average in 2020 (Raj, 2023), outperforming the S&P500 (Pandurangi, 2023). Figure 1 below showcases investment averages for gold, the S&P500, and Hermès Birkin bags, illustrating the rise of the Birkin due to deliberate scarcity (Baghunter, 2016).

While luxury goods rely on deliberate scarcity to maintain exclusivity and pricing power, Hermès has been accused of abusing its position in the luxury handbag market of increasing sales of other goods through predatory sales practices (Raunch, 2024).

Ambiguous monopoly power

Hermès has paid much attention to its perceived monopoly behaviour now. The limited production of Birkin bags raises price and creates an aura of exclusivity, failing to satisfy huge demand and causing allocation inefficiency (Li, 2024). The high quality of Birkin bags solidates its dominance in the niche market of luxury handbags. People might question whether Hermès really holds a monopoly. Though Hermès has its market power, it does not set restrictions on Birkin bag resale in the second-hand market (Marriott, 2024). Consumers can buy the Birkin bags without copious waiting times or the complicated purchase procedures.

The luxury handbag market is not entirely controlled by Hermès. Competitors like Louis Vuitton and Gucci offer alternative handbags that weakens the monopoly claim against Hermès. The distinctness of Birkin does not represent the monopoly power (Moulton, 2024). The competition between brands in the handbag market ensures that consumers have options beyond Birkin bags.

While Hermès yields significant influence in the luxury handbag market, its monopoly power remains arguable. The market dynamics, consumer choices and brand competition make it difficult to determine the exact monopoly power of Hermès.

Does Hermès practise anti-competitive behaviour?

Hermès is alleged to participate in an illegal tie-in strategy (The Guardian, 2024). This strategy restricts consumer choice by tying the transaction of a desired good with one not necessarily demanded to boost revenue and market share. This induces consumers to purchase alternative Hermès products to prove brand loyalty before they are offered a Birkin bag. This strategy increases the allure of the brand as other luxury goods consumers observe the behaviour of Hermès customers, increasing market power. This might increase barriers to entry to other brands in the luxury market, being incredibly difficult to compete with brands with the notoriety of Hermès.

The Lawsuit

California Assistant-Attorney-General’s announcement on the Cartwright Act and criminal prosecution for antitrust cases (Cook-Milligan, Annette, & Shahinian, 2024) (Martino et al., 2024) heralds the civil class action lawsuit (Cavalleri v. Hermès International, 2024) against Hermès in the Northern District of California based on a federal violation of the Sherman Act (15 USC § 2), multiple state violations of the Carthwright Act (Bus. & Prof. Code § 16720) and state violation of the Unfair Competition Law (Bus. & Prof. Code § 17200).

As an exclusive, unreported by major news organisations, the plaintiff, Mark Glinoga, has been part of class action lawsuits which were dismissed; against Uber (Jericho Nicolas v. Uber Technologies, Inc., 2021); against Robinhood ("Stipulation of Voluntary Dismissal," 2023) and settled; against T-Mobile (Plaintiffs' Motion and Suggestions, 2022). The plaintiff’s litigious track-record may impact the jury if the case goes to trial.

The lawsuit (Cavalleri v. Hermès International, 2024) states Birkin sales depends on the “purchase history of ancillary products” by a client, which sales associates benefit from a 1.5-3% commission. It alleges while no commission are made on Birkins’, employees “coerce consumers to purchase ancillary products”. Hermès may argue employees aren’t incentivised to sell Birkin bags as no commission is involved.

Besides tying ancillary products, the Birkin purchasing process is unclear as no public information specifies the spending threshold for qualification, leading consumers to fall prey to the sunk-cost fallacy.

If the Court decides tying is involved, this case is unique as no third-party is involved as it is an internal practice by Hermès, imputing direct liability on Hermès. However, the claims are tenuous as individuals completed a fair exchange receiving the ancillary goods. The plaintiffs have to prove monopoly existence (Meyersohn, 2024) connected to harming the consumer, anticompetitive conduct (Hayes et al, 2024), prove Hermès’ specific intent requirement of dangerous probability of achieving monopoly power, restricting sale conditions under the Carthwright Act (Bus. & Prof. Code § 16720) and that it is exclusionary to competitors under the Section 2 of the Sherman Act (US DofJ, 2022).

Ultimately, Hermès has to answer: who can buy the Birkin? Why can’t some people buy it? What are employees instructed regarding the sale of it? These questions determine the nature of how Birkins’ are sold. To prove anti-competitive behaviour, the plaintiffs have to prove that their practices are not just robust marketing but exclusionary. Regarding the intent to monopolise, these claims would fare better coming from a competitor who can substantially prove that Hermès’s actions directly harmed the market and their business. The suit falls apart if Hermès disproves that the sole value of the ancillary products is to sell Birkin bags, which logically, they are not. While their business practices are unethical, this lawsuit unlikely proves Hermès engages in anticompetitive practices.

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