In many product lines, Wal-Mart constitues either a monopsony, or part of an oligopsony. That is, rather than being the single seller, or one of a small group of sellers, in a market, Wal-Mart is often a single buyer, or one of a small group of buyers, in a market.
As consumers, we don’t hear the terms monopsony and oligopsony too much, but where such buying structures exist, they can be just as problematic as monopoly and oligopoly. Witness Eric Schlosser’s discussion of oligopsony in the American meat industy in his book Fast Food Nation.
It’s been 20 years or so since there’s been any serious talk of “dumping” by foreign manufacturers. At the time, it was portrayed as something akin to predatory pricing, with foreign manufacturers seeking to undersell their American counterparts and drive them out of business. To that extent, the same discussion as above would apply–it can only work profitably if you can eliminate competition in the market completely, and if new competitors will not pop up to capitalize on your subsequent higher prices. Since the firms accused of “dumping” in the 80s were in competition with each other as well as their US counterparts, I can only assume that (absent collusion or other cartel-like behavior among the survivors) that would not be the case, and that the “dumping” was really nothing more than foreign firms with lower costs outcompeting their higher-cost American counterparts.
Minty:
The actual charge was that the DRAM manufacturers were selling the product at below cost in the US (presumably) to corner that market. Not just low cost, below cost. That was key to making the dumping charge stick.
So what? The end result is that consumers pay less than they otherwise would have when purchasing toys. That’s an unmitigated success of the free market system, as far as I’m concerned.
Again, so what? Retailers are pretty well fungible, from an economic standpoint. They’re all selling the same productsm after all. If one of them does it at lower prices and greater convenience to the consumer, that’s the best possible outcome for competition.
Huh? Wal-Mart isn’t making any profit off those loss leaders. It’s losing money on them, and hoping to recoup it through additional sales of more profitable goods. How can the consumer not be better off saving a few bucks on Trailer Park Barbie at Wal-Mart while eschewing the higher-priced goods in favor of another retailer who sells them for less?
Tough luck. An injury to a competitor is not something that antitrust law ordinarily cares about. (Does anybody really care that competition from Wal-Mart drove K-Mart out of business? I certainly don’t.) Only injury to the competitive marketplace is a bad thing. Wal-Mart is a dump, but it’s an extremely efficient and competitive dump. That’s a good thing.
Correct. If it is profitable to produce the printer cartridges (or whatever the “consumables” are), then another supplier will invariably appear. If it is not profitable, no such supplier will ever show up. But this is little or no different from the calculation that XYZ makes in determining whether to continue manufacturing those consumables. They are, after all, under no obligation to continue making them when doing so loses them money.
I think that the consumer is ultimately harmed by Wal-Mart. As Wally World forces its suppliers to close plants and import products, at the same time forcing much of its competition out of business, what will happen is this…
You are either wealthy and can afford to shop at Nordstroms, or you buy your stuff at Wal-Mart. Since it’s hardball tactics are forcing good-paying manufacturing jobs overseas, the unemployment rate is bound to increase, and the underemployment rate even more so. As good-paying manufacturing jobs are lost, being replaced by low-paying service jobs, you have a situation where, because of their lower income levels, an increasing percentage of shoppers can only afford to shop at discount stores, and in many areas, that means Wal-Mart. Meanwhile, the products being sold on the shelves are, incresinly, not high quality goods sold at lower prices, but, well, let’s call it what it is- cheap crap. Which means the clothing items will need to be replaced more frequently because they wear out/fall apart more quickly. So, rather than paying $30-$40 for a good pair of jeans that can be worn for a few years, consumers are paying $15-$20 for a cheap pair of jeans that will probably have to be replaced in less than a year. Ultimately, the consumer ends up spending more money because of the “turnover”.
Personally, I do most of my clothes shopping at thrift stores, where I can get good quality, name brand clothing that has been “field tested” (I really don’t mind if the jeans I buy are showing a bit of wear, I check the seams to make sure they’re holding up), for a lot less than I would pay for the cheap crap at Wal-Mart. Mom shops at Ross a lot- and gets excellent quality merchandise frequently for the same price as the lower-quality prices that Wal-Mart sells.
Anybody know how profitable WA-MART is? They can’t go on ,osing money forever…at some point they must sell items at a profit. My beef with them…they just keep suppliers forcing prices down, and eventually, the stuff is just so cheaply made that it is worthless. take the clothes that walmart sells…they fall apart after a few wearings/washings. Truly low prices, but extremely low quality.
Employment is not a zero-sum game. Some jobs go overseas because they can be performed more efficiently (usually, that means “more cheaply”) overseas. Other jobs are created here, which are more suited to the American labor market–higher skill, greater productivity, etc.
Sure, some people get screwed when jobs go overseas. But that’s hardly the end of the story, and it’s silly to assert that Wal-Mart is responsible for this. It’s a simple fact of economic life in a global economy. Do you think the Bangladeshis are bitching that the Americans are stealing all their computer programming jobs, or that the Venezuelans hate us for hogging all the luxury automobile jobs? That’s just as silly as complaining that textile workers are losing their jobs to Asian competitors.
Hmm, yeah. So, do you have any evidence that America is suffering from lower income levels? I mean, given that protectionists have been complaining about foreign competition and loss of American jobs since at least the late 70s, shouldn’t there be some proof that the boogeyman is real?
They buy remainders at a discount from manufacturers and sellers looking to rid themselves of unsold inventory, then resell the items to consumers at lower prices than the original sellers.
Wal-Mart may have a lot of influence with its sellers, but it is nowhere near the only buyer in the market. If Vlasic doesn’t want Wal-Mart to cut the prices on its overpriced pickles, Vlasic can take its business elsewhere . . . and suffer the competitive consequences.
If Wal-Mart had this terrible effect, why is the U.S. unemployment rate only 5.9% - pretty good for a Western democracy? Why isn’t it higher than it was, say, 20 years ago? (It’s lower.) People have been saying these nasty foreigners are stealing U.S. jobs for years - so why isn’t the unemployment rate ballooning?
There are some consumables that can’t be supplied by a competitor. For example, if Microsoft went out of business and destroyed their cryptographic keys, no one would ever be able to produce Xbox games, no matter how profitable it might be. The same is true of some printer cartridges and razor blades, because the interface between the product and its consumables (or the production of the consumable itself) is protected by intellectual property law.
The consumables are profitable, but Walmart won’t sell them unless XYZ corp supplies some low-margin commodities on very unfavorable terms. To flesh out the example a bit more…
Walmart stores in New York, Dallas, and Milwaukee put the commodity on end-of-aisle display, without telling the supplier that it plans to do this. Stores run out, penalties kick in. Supplier scrambles to catch up, empties warehouses in a wide region. Stocks dwindle to the point where that the next shipment from Malaysia (in a container ship, 2 months away) is going to be way too late. Supplier makes a rush order to factory in Malaysia, then charters cargo jets to bring commodity product to the US. This gets expensive really fast.
You could say “gee, the supplier doesn’t know how to plan”. Could be, or it could be that Walmart is abusive.
If the supplier goes out of business (close - it emerged from chapter 11 this year), sure, somebody else can try to take up the slack. However, the equation isn’t the same. A new supplier has to pay for startup costs (factory, technology, distribution, etc), and then is potentially faced with a similar “deal” from walmart.
This is true, but I don’t blame walmart for it. walmart is a symptom of a society that, by and large, buys on price. Quality is way down the list.
I used to work in bicycle shops. They hardly exist anymore. They used to exist by selling a whole lot of $200 to $500 bikes (which were much better than $150 department store bikes), a bunch of $500 to $1000 bikes, and a few $2000+ bikes. Call it a 75/20/5 split. Then department stores got aggressive, and what was $150 is now $75. Bike shops completely lost their bottom end, and had a hard time keeping with just the middle and high end. Result is that you get rid of most bike shops, and what is left is skewed towards selling $2000+ bikes.
So you have the Walmart <-> Nordstrom dilema, the middle has disappeared.
Do the consumers lose? It depends. If all you ever wanted was a bike that you would ride around the block 10 times then hang in your garage for the next 20 years, a department store bike is just fine, and you’ve saved $75 from what it used to cost. However, if you really want to ride, you need a bike that can be serviced, from a place that will make sure you get a good fit, offers advice, and can fix what they sell. You can still get that service, but you’ll have to look around a bit (there are a lot fewer shops around that even 10 years ago), and you’ll probably find that the places that can help mostly deal in $2000 bikes.
Its not just bikes. Electronics, furniture, appliances, hardware, building supplies, food, etc.
Sure. But this is in no way a function of Wal-Mart’s buying power, nor is Wal-Mart’s hard line on prices likely to be the make-or-break deal for any significant company. I can’t buy specialty replacement parts for my Volkswagen at Wal-Mart, but VW seems to be chugging along just fine.
Please understand that there is a difference between missing the point and disagreeing with a faulty premise.
So what? If it is unprofitable for XYZ to sell its goods through Wal-Mart, then it can sell its goods elsewhere. If it is not profitable for XYZ to sell its goods elsewhere, then to hell with XYZ.
Tough luck. If their contract says–as Huffy’s did–that they will supply all the goods Wal-Mart can sell, then they either comply with that contractual obligation or breach the contract. If they don’t want to provide all Wal-Mart can sell, then they can either negotiate a set quantity or they can go sell their goods elsewhere. That’s the way the free market is supposed to work.
Helpful legal advice: Do not enter into contracts you cannot or do not intend to fulfill. If you do, don’t come crying to me. Take it like a man and fulfill your obligations.
This is ridiculous. First, start-up costs are no real impediment to a profitable enterprise. Hell, ABC company can just buy XYZ’s assets out of bankruptcy and start exactly where XYZ left off. Second, you know what happens if Wal-Mart strikes deals so unprofitable that its suppliers can’t stay in business? Wal-Mart can’t buy the goods that it needs to sell to consumers in order to remain profitable. Not a very good business plan.
Will some suppliers negotiate their way into bad deals? You bet. That’s the nature of business. But so what? Wal-Mart’s market access and buying power does tremendous things for the purchasing public, and that good easily outweighs the bad consequences of the occasional bad deal made by its suppliers.
BTW, if you were to speak to the head honchos at Wal-Mart, I’m sure they would be happy to tell you about all the bad deals they’ve struck with their suppliers. Such things work both ways, you know.
If you price stuff below actual cost, and the result is that your competitors who don’t have the deep pockets you do get driven out of business, my impression was that that was against the law. Am I wrong on this? IANAL, and all that.
As long as new competitors keep on springing up. If it can engage in predatory pricing to knock competitors out of business, then I would expect would-be competitors to eventually shy away from competing with WallyWorld.
OK, let’s try this again: there’s the loss leaders, and there’s the other items. WM isn’t making any profit on the loss leaders; it’s losing money on them. It’s making profit on the other items.
This doesn’t mean that it’s overpricing the other items relative to other retailers. It may be making a higher profit margin than its competitors on the other items because it’s able to use its market share to drive a tougher bargain with its suppliers than its competitors can. That’s essentially what JC’s article alleges, anyway.
As a result, the consumer wouldn’t win by going over to KMart, because KMart’s selling the other items for the exact same price, but just making less money on the deal.
Hopefully that part makes sense now.
If WallyWorld annihilates K-Mart because Walmart does business better and more efficiently than KMart, I’ve got no problem whatsoever with that.
However, I’m talking about predatory pricing here, and that’s not the same as simply being extremely efficient and driving hard bargains. The latter is unquestionably legal, even if the ruthlessness with which Wal-Mart exploits its market share in its relationship with its suppliers is kinda frightening.
My question for you, minty, is: isn’t predatory pricing illegal? What I mean by this is selling at a loss to drive one’s competitors out of business. (If predatory pricing is a term of art that means something else, please correct me here. You’re a lawyer, I’m not.)
It would seem to me that not only do consumers have some rights, but so do businesspersons competing in the marketplace. It’s been a long time since my high school and college history courses covered the way robber barons of a century ago sold below cost to drive smaller competitors out of business, but I coulda sworn the outcome was that laws were passed against that. Educate me, please.
RickJay the actual umnemplyoment rate is much higher than 5.9% . See, if you exhaust your unemployment benefits, you are no longer unemployed, as far as the Labor Department is concerned. If you’ve become discouraged and given up looking for work, you’re not officially unemployed even though you’re out of a job and would like to be working. If you’ve lost a job in a particular profession or occupation and have taken a lower-paid job in another field, you’re not unemployed, but you’re not making as much as you used to. 5.9%. Makes a convenient little statistic if you’re, oh, say, going to be running for re-election next year, but it isn’t accurate.
I’m not saying that Wally World is the sole force driving unemployment, but it is a contributing factor that cannot be ignored, considering Wal-Mart’s share of the retail market.