Home Depot and Lowe’s: Competing in an Oligopoly Market

The Gardening Market Dominated by Home Depot and Lowe’s

Home Depot and Lowe’s are competing in an oligopoly market. Both companies dominate the gardening market share both in volume and revenue. In this case, because it is two companies controlling the industry, it would be a duopoly. Even though both companies sell extremely similar substitute products, they both try to differentiate themselves from each other as well as take on different strategies. Spring is the peak season for flowers so both companies try to discover and develop new plants that they can have exclusive rights to for a year or two. Lowe’s looks through thousands of different flowers to narrow down to a few dozen to test.

They will test them in different regions in the US to see if they can handle the weather conditions as well as see if they can be mass-produced cheaply. Once the testing is finished, Lowe’s will narrow it down to about 10 flowers that will be a part of their exclusive line. Home Depot buys flowers from about 100 producers around the US. Even with different strategies, both companies assemble focus groups to make sure they are capturing consumer’s preferences (Bustillo, 2011).

As stated above, the model that applies to Home Depot and Lowe’s is the Cournot model or duopoly. This is when, “two profit-maximizing firms compete by simultaneously, independently, and irrevocably decide how much to produce” (Webster, 2017). Both companies have substitute products and their low prices make it difficult for other firms to join the industry. Lowe’s and Home Depot are in fierce competition with each other which forces them to adjust to each other’s strategies.

Nearly all home improvement projects in the United States are going to start at one of the two largest hardware stores; Home Depot or Lowes. While there are multiple smaller retailers that offer similar products none are as productive as these two which collectively have formed an unofficial Oligopoly or Duopoly over the home improvement sector. An Oligopoly can be identified when a very few number of firms work through multiple methods to take charge of a market. Together both companies possess about 48% of the market (Danzinger,2020).

 They have achieved this position by outmaneuvering the other players in the market. By utilizing online shopping and economies of scales available due to size Lowes was able to achieve “more than 20% of growth in the pro-business in the third quarter” (Repko,2020).  During a time when unemployment was extremely high consumers were still putting investments into homes, the retailers responded positively by ensuring their stores had plenty of products and employees to meet the demand (Lee, 2020). While they have not been found to be purposefully collaborating the degree of competition between the competitors is quite intense as seen in Miguel Bustillo’s article regarding the competition to bring the shopper into their store over the other.

Together the “retailers secure exclusive rights to hot new varieties for a year or two at most” (Bustillo,2011). While they hold the rights to these flowers other competitors cannot utilize or sell them giving a significant advantage to the big box stores. As discussed in the weekly readings it is quite difficult for smaller shops to compete in the same market and in the long run may find they are unable to compete due to the barriers to stay in the market.