Transcript Chap042

Chapter 42
Wal-Mart: Always Low
Prices (and Low Wages)—
Always
McGraw-Hill/Irwin
Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
Chapter Outline
• The Market Form
• Who Is Affected
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You Are Here
42-3
The Market Form
• Small Towns
– Oligopoly or Monopoly
• Everywhere else
– Monopolistic Competition
• Competitors
–
–
–
–
Supers (Wal-Mart, Target, K-Mart)
National Chains (Kroger, Safeway)
Regional Chains (Wegmans, Winn-Dixie, Publix)
Locals
» IGA affiliated
» Independent
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Top Ten Grocery Store Chains
Rank
Company
1 Wal-Mart Stores
Annual
Sales
(billions)
% of
Total
Grocery
Sales
($893b)
% of Top
10
Grocery
Sales
($613b)
$258.5
28.9%
42.2%
2 Kroger Co.
$77.2
8.6%
12.6%
3 Costco Wholesale Corp.
$72.5
8.1%
11.8%
4 Supervalu
$45.0
5.0%
7.3%
5 Safeway
$44.8
5.0%
7.3%
6 Loblaw Cos.
$31.5
3.5%
5.1%
7 Publix Super Markets
$24.0
2.7%
3.9%
8 Ahold USA
$21.8
2.4%
3.6%
9 Delhaize America
$19.2
2.2%
3.1%
$19.0
2.1%
3.1%
10 C&S Wholesale Grocers
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Store Locations
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Monopsony Concerns
• Wal-Mart is the biggest wholesale buyer
for many companies’ products.
• Wal-Mart (often) dictates the price will is
willing to pay.
– This forces companies to
• outsource production.
• cut costs (including wages and benefits)
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Who is Affected?
Consumers
• For consumers who switch to Wal-Mart the gain
is b/w $15 million and $33 million per store
– Wal-Mart’s prices are 15-22% lower than national
averages.
– An average Wal-Mart sells $100-$150 million in
goods.
• For consumers who like their old store, but it
closes.
– Consumers “reveal” their preferences by paying
higher prices at smaller IGA stores.
– These consumers are worse off if the store closes.
• Nearly all economists consider this a net win for
consumers.
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Who is Affected?
Workers
• Wal-Mart’s pay and benefit package is $5-$10
lower than their competitors.
– Competitors are
• unionized
• have retirees
• New Wal-Marts hire b/w 450 and 500 workers
(375-400 FTE)
– Many/most of the new Wal-Mart jobs are displaced
elsewhere.
• Productivity rises.
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Who is Affected?
Taxpayers
• Most (b/w 70% and 80%) of a new WalMart’s sales displace sales elsewhere in the
community.
• Sales taxes would not necessary be
affected because
– Food is rarely taxed
– The increase in sales is mostly from people in
the state (or taxing district.)
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Who is Affected?
Other Businesses
• Hurt
– Competitors that try to “out Wal-Mart WalMart”
• Unaffected
– Competitors that sell goods Wal-Mart does
not
• Helped
– Complementary stores and restaurants that
surround the Wal-Mart
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Who is Affected?
Community
• Sociologists have noted that Wal-Mart
damages the non-economic fabric of
communities.
• Displaced business owners tend to be
– Church leaders
– School Board members
– Community leaders
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What is the Net?
• Winners
– Most Consumers
– Complementary Businesses
• Losers
– Workers
– Competing Businesses
• Economists generally view the net as
positive
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