First Cow Economics: An Oily Cake Monopoly

Part 2 of a series analyzing the economics in Kelly Reichardt's latest film

When people hear the term “monopoly,” some may think of the popular board game for which nobody seems to know the actual rules. Others may think of tech giants like Apple, Google, Amazon, and Facebook, whose CEOs testified(virtually) in a historic antitrust hearing before the House Judiciary Committee just last week.

Most of us probably aren’t thinking of oily cakes.

In Kelly Reichardt’s latest film First Cow (2019), King-Lu (Orion Lee) and Otis “Cookie” Figowitz (John Magaro) build a successful business in 19th-century Oregon by stealing milk and selling baked goods. In a land full of hunters and trappers, baking is a rare skill and milk is a rarer resource. With both, the entrepreneurial pair create an oily cake monopoly that earns them a small fortune.

In part one of this series, I analyzed the interplay of supply and demand in the oily cake market, as well as how the law of diminishing marginal utility influences King-Lu’s sales strategy.

In this second part, I will examine four characteristics of monopolistic firms that characterize King-Lu and Cookie’s oily cake business:

  1. Monopolies sell a unique product
  2. Monopolies have high barriers to entry
  3. Monopolies are price makers
  4. Monopolies practice price discrimination

Monopolies Sell a Unique Product

“Monopoly” describes the market condition in which a single supplier makes up the entire supply for a given good or service. In order to monopolize a market, the producer must provide customers with a unique product.

Oily cakes with cinnamon and honey in Kelly Reichardt’s film “First Cow”
Nothing like it | Screen grab from “First Cow”

Oily cakes are unique. No other food in the Oregon territory resembles it in taste or appearance, which means that no other product can compete against it. Let us suppose that Cookie and King-Lu parted ways and the former started selling oily cakes with cinnamon while the latter sells oily cakes with honey. Although these cakes differ to an extent, they remain similar enough that they would compete for the same customers. This hypothetical market would have two suppliers, not one. A supplier can operate as a monopoly only if they sell a unique product that cannot be substituted with another.

Monopolies have High Barriers to Entry

Having a unique product only matters if there are high barriers to entry—obstacles that prevent other suppliers from entering the market. Without any obstacles, opportunists would try to reproduce King-Lu and Cookie’s success by selling their own oily cakes. Once such suppliers enter the market, the duo would no longer own a monopoly; therefore, it is in King-Lu and Cookie’s best interest that others cannot reproduce their product so easily.

The titular cow in Kelly Reichardt’s film “First Cow”
A barrier to entry | Screen grab from “First Cow”

Fortunately, two strong barriers protect their business: raw materials and skilled labor. Chief Factor’s (Toby Jones) cow, true to the film’s name, is the first cow in Oregon. Cow’s milk is impossibly difficult to procure — the pair only obtain it via theft. Even with the milk, one would need Cookie’s baking skills to convert the milk into a delicious cake. Since nobody else has the requisite milk or skill to make their own oily cakes, Cookie and King-Lu can continue to dominate.

Monopolies are Price Makers

With a unique product and barriers that prevent competition, the monopolist has the power to set the market price.

There is an important difference between a company setting its own prices versus a company setting the market price. In a competitive market with many producers, a single producer must abide by a market price that is determined by the balancing of overall supply and demand. If every other company is selling the same product for $5, a single producer cannot sell that product for $10 and expect anyone to buy from them. Competitive suppliers, then, are price takers.

Orion Lee as King-Lu in Kelly Reichardt’s film “First Cow”
I set the market price at 5 ingots | Screen grab from “First Cow”

King-Lu and Cookie can set the market price because their output constitutes the entire market supply. No matter what price they set, customers can only accept that price if they want their product—they cannot buy an oily cake anywhere else, and they cannot buy any substitutes for an oily cake because the product is unique. As monopolists, the King-Lu and Cookie are price makers.

Monopolies Practice Price Discrimination

By extension, monopolies can use their price-setting power to practice price discrimination—the act of charging different prices to different people based on their willingness to pay. If customers A and B are willing to pay $5 and $10 respectively, then a supplier that charges a flat price of $5 will miss out on the other $5 that customer B was willing to pay.

A profit-maximizing monopolist could charge different prices to different customers. The film displays this tactic in action when Chief Factor himself asks to try a cake. Accounting for the man’s wealth, King-Lu hesitates before charging him 10 silver pieces instead of the usual five. Chief Factor happily pays this amount, and the duo’s ability to price discriminate in this instance allows them to net more profit.

Toby Jones as Chief Factor in Kelly Reichardt’s film “First Cow”
Willing to pay more | Screen grab from "First Cow"

With a unique product, high barriers to entry, the power to set market prices, and the ability to practice price discrimination, Cookie and King-Lu’s oily cake monopoly earns them a small fortune.

Their venture, however, carries a great risk. How many more times do they risk their lives to steal milk from Chief Factor? Look to the next installment of this series on First Cow economics, in which I will discuss how economists use concepts like marginal benefit, marginal cost, expected value, and risk appetite to answer such questions.

In the meantime, consider playing a game of Monopoly. First person to land on Boardwalk gets an oily cake.