Reading about a new Eco Index started me thinking about competition. The Eco Index is somewhat comparable to the Energy Star rating created by the EPA in 1992. For appliances, Energy Star ratings convey energy efficiency information. For apparel, the Eco Index provides a green score.
As described in a WSJ article, the Eco Index is composed of questions that relate to environmental and labor practices. Using information about the entire, “… life of a product, from raw-material production to manufacturing, shipping, and even disposal,” a score is assigned. Levi’s, for example, elevated its Eco Index score for stonewashed 501 jeans by rerouting trucks to save carbon emissions and suggesting cold water washing.
Having started during the 1850s with a basic, utilitarian pair of Levi Strauss jeans, now the jeans market involves many firms, many designs, many price points. So, when I saw the Eco Index, I perceived it as a way for firms to differentiate themselves.
The Economic Lesson
Levi’s and other jeans makers compete in a monopolistically competitive market. The characteristics of monopolistic competition include many sellers with a similar product, sellers creating an individual unique identity, and sellers having some control over price. The Eco Index will enable certain sellers to convey this unique identity.
From most competitive to least competitive, the four basic competitive market structures are perfect competition, monopolistic competition, oligopoly, and monopoly.