Is Wal-Mart a Monopsony?

Wal-Mart

Is the world’s largest retailer, Wal-Mart, a Monopsyny?

• Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice other than to deal with that buyer.

• One in every five retail sales in America is recorded at Wal-Mart's cash registers.

• The firm's revenue nearly equals that of the next six retailers combined.

• Wal-Mart has faced several accusations of, "predatory pricing", or intentionally selling a product below cost in order to drive some or all competitors out of the market.

• Wal-Mart accounts for upward of 30 percent of U.S. sales, and plans to more than double its sales within the next five years.

• Wal-Mart decided that it did not approve of the artificial sweetener Coca-Cola planned to use in a new line of diet colas. In a response that would have been unthinkable just a few years ago, Coca-Cola yielded to the will of an outside firm and designed a second product to meet Wal-Mart's decree.

• Wal-Mart recently decided to allow each individual pharmacist in the company to choose whether or not to stock the "morning after" pill.

• Wal-Mart's constant demand for lower prices caused Kraft Foods to "shut down thirty-nine plants, to let go of 13,500 workers, and to eliminate a quarter of its products."

• Wal-Mart's product selection is a controversial subject, and is often right leaning. Examples of items that Wal-Mart does not sell are certain men's magazines such as Maxim and albums marked with RIAA's Parental Advisory Label.

• Critics point out apparent hypocrisy in that Wal-Mart sells other controversial items such as rifles and shotguns, R-rated movies, and violent video games.

• In 2005, Wal-Mart rejected the original cover of Willie Nelson's reggae album, Countryman, which featured marijuana leaves, in an apparent pro-marijuana statement. To satisfy Wal-Mart, the record label, Lost Highway, issued the album with an alternate cover, without recalling the original cover.

• Wal-Mart has created 240,000 jobs over the last three years alone.

• A global insights study says that Wal-Mart saves the average American household more than 2,300 dollars a year.

• In 2005, Wal-Mart generated more than $13.9 billion in state and local sales taxes and paid millions in property taxes.

Work Cited

• 1."Criticism of Wal-Mart." Wikipedia. 25 Oct. 2006. Wikipedia. 2 Nov. 2006 http://en.wikipedia.org/wiki/Criticisms_of_Wal-Mart.

• 2. Lynn, Barry. "The Case for Breaking up Wal-Mart." Harper's Magazine. 25 July 2006. 3 Nov. 2006 http://www.alternet.org/workplace/39251/.

• 3. Bartlett, Bruce. "A Distorted Lens on Wal-Mart." Washington Times. 24 Dec. 2004. 3 Nov. 2006 http://www.washtimes.com/commentary

“Through the history most politicians and economists accepted that freedom within the marketplace had to be limited, at least to some degree, by rules designed to ensure general economic and social outcomes.”(2) This was the idea to stop any one firm from becoming to powerful and gain control over one area of the marketplace. The first view that I am going to be talking about is that Wal-Mart is a monopsonistic power. In today’s day an age when people hear the word monopoly they usually focus on the danger that a firm, having gained control over the market, will then force an unfairly high price on the society at a whole. Although what should concern us now is the mirror image of a monopoly called a monopsony. A Monopsony arises when a firm captures the ability to dictate price to its suppliers, because the suppliers have no real choice than to deal with that buyer, thus forcing such suppliers to supply their products at a much lower rate.

In our favor today in our economic world we have the best example of a monopsony, Wal-Mart. Just by looking at the statistic that an upward of thirty percent of U.S sales is accounted by Wal-Mart, you can see that they have enormous purchasing power. The prime example of a monopsony power came to place with recent negotiation with Coca-Cola and Wal-Mart. Wal-Mart decided that it did not approve of the artificial sweetener that Coca-Cola planned to use in the new diet colas. “In a response that nobody would have seen coming years ago; Coca-Cola yielded to an outside firm and designed a second product to meet Wal-Mart’s expectation.” (2) This is a prime example