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There are a very large number of suppliers of common, inexpensive products, and I am wondering why a few large companies don't simply provide all the supply? I am not thinking of food or clothing or something where people could meaningfully differ on preferences, I mean things we don't see or can't distinguish anyway, things that I call 'commodities'. The best example I have today is cabin air filters for cars.

I went to buy one at Walmart today, and there were several brands and about 50 different sizes, and all the brands had a different numbering scheme. This was vexing, and I bought one only to discover that it didn't fit. I looked at Amazon.com and found an absolutely staggering number of brand names. Is there some point to this? Are cabin air filters so exciting that everyone needs to get in on the action? Why don't a few companies make them all? Is there a reason that the 'marketplace' can support a huge number of producers for something no one could tell apart or really care much about?

Perhaps this relates to the concept of Indifference in economics. I have seen this dynamic in other products, but this is the best example I know of. Try looking on Amazon and see for yourself.

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  • $\begingroup$ I discovered today that one of our old cars has a cabin air filter, and I never knew that (I didn't buy the car). So it looks like someone emptied an ashtray in it, which is what prompted my search. The car manual does not show where it is, or what size or part number to use. Same with the brake light bulb I needed to replace. $\endgroup$
    – Scott Rowe
    May 15 at 23:01
  • $\begingroup$ I think this question confuses two things (at least): (1) Why is there a staggering number of brands? an (2) Why is there a huge number of producers? Car cabin filters could all be produced by the same producer yet be different because heterogenous car customers leads to product differentiation on the car market and one characteristic on which to differentiate a car from another is cooling/ventilation system. $\endgroup$ May 16 at 15:19
  • $\begingroup$ Once you buy a computer and has to replace the hard disc you also needs one that 'fits' yet there are not a lot of hard disc producers even if there are a lot of brands or types. The demand for spare parts is kind of a derived demand from the fact that you decided to buy that particular computer or car in the first place. Cars and computers are both heterogenous durable goods that consumers use to produce a flow of services to themselves over the lifetime of the product. $\endgroup$ May 16 at 15:22
  • $\begingroup$ You may not think you care about the spare part because you cannot distinguish it. However, Daimler would argue that you implicitly care and they spend a lot of resources combatting the production of counterfeit spareparts claiming that the authentic spareparts have higher quality. They are also very selective with respect to whom gets to produce and sell their spareparts. $\endgroup$ May 16 at 15:29
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    $\begingroup$ @JesperHybel these are good points, however, for many things in life it is just a question of: either it works or it doesn't. Few people concern themselves with the precise degree of functioning of the car A/C. If they are not cool enough, they take it to the shop. The fact that the shop will readily charge an hours' wages or more to replace a cheap filter or windshield wipers is on the owner to look out for. If you own this complex thing and know nothing about maintaining it, I guess you deserve to pay more. I once started a car with a pencil, and another time a broomstick. $\endgroup$
    – Scott Rowe
    May 16 at 17:26
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There can be several reasons or combination of reasons that could be responsible. This is too broad topic to go into every minutiae detail but main well known reasons from industrial organization literature would be (see Peitz and Belleflamme: Industrial Organization: Markets and Strategies):

  1. Small businesses might have cost advantage over large businesses. Not every industry has production function with increasing returns to scale. If returns to scale are decreasing there might be an optimal sweet spot size for a firm beyond which it does not pay to grow output more.
  2. If there are no significant barriers to entry, markets with homogenous products will typically attract a lot of competition.
  3. Government policy might be responsible for that as well. Many countries support small and medium size businesses with various policies. If government positively discriminates towards such businesses with lower corporate taxes, subsidies etc, then this might discourage expansion of these businesses since loosing subsidy is equivalent of facing tax on a margin and thus it would discourage businesses from expanding unless there would be sufficiently large economies of scale that would outweigh this.

Furthermore, note you are likely getting causality in a reverse. It is well established that competition among many suppliers of similar/same product leads to lower prices in most models (see overview of industrial organization literature in the above mentioned Peitz and Belleflamme). Consequently, the reason why common items are cheap is that there are many suppliers in the first place.

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  • $\begingroup$ This is so helpful, I have been wondering about this for decades! Things that make no sense from one point of view make perfect sense from another. (They are still wrong, but I can understand. ha ha) I always think of work in terms of self-development and helping people, not so much in terms of doing something to survive. But, it happens. And companies can have very different goals from people. $\endgroup$
    – Scott Rowe
    May 16 at 17:21
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Since the item you bought did not fit, that suggests that some brands do not offer matches for all the popular cars. This of course necessitates that the vendor carry more brands.

Retail stores have increased in size and interest rates seem to be low enough to justify the small cost of the temporary investment in more inventory. That makes it feasible to stock two brands of a practically identical part. Online vendors have less real estate expense and some of them might not have any inventory so again there is a low cost to display more brands. It's not a good look for a retailer to offer only one brand in both the physical and online settings.

If the cost to make CAD files and templates and moulds is low enough then there will not be a big incentive for one maker to outsource to the other or to offer to buy the business. If they are in different countries and cultures there is more risk in merging businesses. If the part is a component of a larger system, such as an air filter is to a car, the maker of the larger system may want to purchase from multiple component makers to increase security of supply. This will tend to perpetuate the existence of multiple component makers.

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  • $\begingroup$ These are good points, and it helps me think about the situation. As a programmer, I am used to situations where there is only one supplier that anyone uses: commercial products tend to run on Microsoft OS or programming tools. So, in a non-material field where it would be trivial to use any of hundreds of suppliers, we instead standardize on one. In a material area, like air filters, where it would make even more sense to standardize, we have this blizzard of suppliers. As much as the economic reasons make sense when explained, it still seems pointless. Why bother to have more than one? $\endgroup$
    – Scott Rowe
    May 16 at 23:21
  • $\begingroup$ @ScottRowe There have been many small systems OSs apart from the dominant DOS, Win, Win NT lineage. CP/M, Xenix, OS/2, pre-Mac Apple, pre-Linux Mac, Mac. The economy will produce more than one because that is the nature of entrepreneurship. Low IP, low selling price per unit car part production has many countries participating. Some businesses will fail. Some businesses will get bought. It takes time for consolidation to happen and it will be slower in some industries. $\endgroup$
    – H2ONaCl
    May 18 at 1:08

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