Chapter 42Wal-Mart: Always Low

Prices (and Low Wages)—Always

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter Outline

• The Market Form• Who Is Affected

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You Are Here

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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

Annual Sales (billions)

% of Total Grocery Sales ($893b)

% of Top 10 Grocery Sales ($613b)

1 Wal-Mart Stores $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%

10 C&S Wholesale Grocers $19.0 2.1% 3.1%

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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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• 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.

Who is Affected?Workers

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• Most (b/w 70% and 80%) of a new Wal-Mart’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.)

Who is Affected?Taxpayers

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• Hurt– Competitors that try to “out Wal-Mart

Wal-Mart”• Unaffected

– Competitors that sell goods Wal-Mart does not

• Helped– Complementary stores and

restaurants that surround the Wal-Mart

Who is Affected?Other Businesses

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• 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

Who is Affected?Community

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What is the Net?

• Winners– Most Consumers– Complementary Businesses

• Losers– Workers– Competing Businesses

• Economists generally view the net as positive