Another Wal-Mart Topic...

Economics Economics Questions
1

For a long time I demonized Wal-Mart for killing mom-and-pop grocers and driving production of certain goods overseas. After reading Henry Hazlitt I understood the existence is beneficial to the economy as a whole. However, the other day as I walked through Wal-Mart I thought to myself how limited the selection is and it brought me to the question.

What about the products they don’t carry?

For example. I am at my local market in called Woodman’s grocery, and I buy my favorite brand of cream soda; it’s my favorite because it contains honey rather than corn syrup or sugar. So with my purchase the store orders more, the factory makes more and they eventually order more honey.

Now let’s say over the course of several years a Wal-Mart moves in and puts Woodman’s out of business. Now my choices are limited and my items are now harder to come by. The new brand of cream soda they carry contains corn syrup rather than honey.

What about the honey manufacturer. Hazlitt comes to mind here saying that the nation isn’t poorer as now the corn syrup industry’s sales have gone up and stimulated a different part of the economy.

But isn’t this Wal-Mart picking winners and losers? Where do we draw the line?

2

What is “the line”, and why must “we” draw it?

I demand a law that would prohibit anyone from putting my favorite cream soda shop out of business! And even if it was about to go out of business on its own, I demand that everyone gets taxed so “we” could subsidize its existence! It’s only fair, no?

3

You don’t draw the line, you just choose which lines to cross.

Wal-Mart is a distributor more than a producer, I’m sure Wal-Mart products are produced by some other company that has their own “name brand” products, etc. (this is my theory, as I know companies will do this - producer cheaper, lower quality versions and sell them off under another name, etc.) Either way, someone will sell said soda for those reasons. I’m sure you’re not the only one who wants that product.

Wal-Mart does not have a large selection, they just sell a large variety of goods. For example, Wal-Mart’s alcohol section is very limited compared to some place like Harris Teeter which will carry a variety of microbrews (that’s how it is around here). Though, Wal-Mart does not make their own beer, and I’m sure if they did no one would drink it. What is going to make a company go out of business is if someone competes with them directly and is somehow more effecient, as for your soda I wouldn’t be worried about Wal-Mart, but another company specializing in that area.

The thing with the mom & pop shop arguement is that some entire quality of good or service is lost, but the distributor is a middle man getting the product from it’s origin to you. It’s as if the hypothetical mom & pop shop was better in doing so, but does anyone here remember a shop actually going out of business due specifically to Wal-Mart?

Only thing I actually buy from Wal-Mart are jeans, socks, etc. That’s a very broad and basic product that can be bought anywhere, but I don’t go to Wal-Mart for guitar strings and picks or books on econ theory. Said mom & pop shops are going to have to compete with Barnes & Noble, Guitar Center, and FYE; not Wal-Mart.

4

Why wouldn’t your favorite brand of cream soda (want to be) sold at Wal-Mart?

5

@z1235 I suppose clarification makes all the difference in the world. When I said “where do we draw the line” I meant as in. Where do we draw the line between beneficial to society and what’s not beneficial?

@Bert

“It’s as if the hypothetical mom & pop shop was better in doing so, but does anyone here remember a shop actually going out of business due specifically to Wal-Mart?”

Though I am sure you can debate what I am about to say, in my opinion the evidence is clear. When I was younger I worked at a store called Speiglehoff’s Piggly Wiggly which was the only store in town and was the only store owned by that particular man. He featured a wide variety of local goods and small batch goods and name brand goods.

During my time at piggly wiggly a Wal-Mart opened up within a mile from our location. We went from crazy busy to dead slow within a few months, my boss would post a deal and Wal-Mart would match it within a day. I remember my boss getting us into a circle for our morning meetings talking about how we have to provide better service or we’ll be closed in a year. In a town of 2000 with heavy thru traffic, Wal-Mart was the only real competitor. Wal-Mart closed that shop down.

Another personal story.

My sister owns a landscaping business and nursery. When she has a special that run’s long enough, Wal-Mart will pick up on it and match it. Customers come to her shop and say that her prices are too high and that they will just go to Wal-Mart. We’ve discussed her prices and we’ve found that her prices are more competitive than the other flower shop in town (countryside nursery). My sister is also convinced and has some of her customers convinced that her flowers will “stay” longer than wal-marts. As her flowers were cared for and use only natural fertilizers while wal-mart uses chemical boosters to make their flower superficially more appealing.

Wal-Mart hurts my sisters flower sales more than countryside does. That said would it be to hard to believe that Wal-Mart could put someone out of business?

I also have seen a wal-mart open up next to a k-mart and dominate it, but that doesn’t help my point.

Back on topic

Where do we draw the line between what’s beneficial and what’s not? Speaking purely hypothetically, What if every store was replaced with a Wal-Mart and they largely push one product rather than the general publics preferred product which contained, once again, honey. Let’s say the products pushed instead were sugar.

The nation’s sugar producers are richer, true. But the nations honey producers would be disappearing.

I know this conversation is bordering on irrational at this point due to the many other practical uses of honey but for this example, what if the honey industry was completely destroyed throughout America? (Again I realize this is hardly the case however I want to see how far we push what’s beneficial and what’s not.)

What if instead of just the honey industry that was affected it was 1,000 companies? Do we draw a line ever between what’s beneficial and what’s not?

I suppose the market has chose a winner but only at the behest of a central bank, I mean central wal-mat.

I guess I am just thinking out loud.

6

Just for the record, here’s some comprehensive evidence that the rate of small business bankruptcy in states that have a Walmart isn’t much different from states that don’t, and in fact in some cases Walmart makes small business more profitable through the savings it gives consumers, increasing the amount they have available to spend in other sectors of the economy .

7

“Why wouldn’t your favorite brand of cream soda (want to be) sold at Wal-Mart?”

Perhaps they want to be sold in wal-mart but due to the higer price in honey over corn syrup it’s impossible to compete. Wal-Mart only sells the products that move the fastest.

8

“Just for the record, here’s some comprehensive evidence that the rate of small business bankruptcy in states that have a Walmart isn’t much different from states that don’t, and in fact in some cases Walmart makes small business more profitable through the savings it gives consumers, increasing the amount they have available to spend in other sectors of the economy .”

I understand all of this and don’t contend any of it.

9

@trunks sent you a profile comment regarding blogs

10

I think it helps to understand game theory and some of the irrationalities that can arise within markets. You mentioned how Wal-Mart matches their competitors prices. Since Wal-Mart is so big, it can afford to run at a loss in a given product for a time. Wal-Mart can choose to sell flowers at a loss for longer than your sister’s business can. This may then drive her out of business, and then Wal-Mart has the ability to raise the price of its flowers above what your sister was selling them for. People are drawn to the lower prices at Wal-Mart, but that doesn’t make them better off in the long run. No one thinks they are personally putting the local mom-and-pops out of business because they buy things at Wal-Mart–but all of the individual actions add up. To use an example familiar to many here, consider the “Tragedy of the Commons.” Each person’s utility is increased by shopping at Wal-Mart, but the consequences of everyone acting in this way may result in something that no one wants.

11

Thanks for the insight, I’ll check out your link. :slight_smile:

12

The other classic example in game theory is the prisoner’s dilemma. It’s application here might not be as obvious, but I think it has a lot of relevance to economics in general.

“Another example of the prisoner’s dilemma in economics is competition-oriented objectives. [11] When firms are aware of the activities of their competitors, they tend to pursue policies that are designed to oust their competitors as opposed to maximizing the performance of the firm. This approach impedes the firm from functioning at its maximum capacity because it limits the scope of the strategies employed by the firms.”

13

Walmart doesn’t just push other stores out of business. It wins because it gets more customers than the other store. Also, why do mom and pop have a higher right to earn profit than the people at Walmart?

If Walmart is so socially negative, convince people not to shop at Walmart. If you can’t convince a significant percent of society that Walmart is bad, perhaps it’s not so bad.

Who is to decide what is beneficial for society? Whose value system do we use? Remember, all value is subjective, not objective. The only true way to make “society” better off is to engage in voluntary trade. Why? Because trade is guaranteed pareto-efficient. Both parties are better off. If you instead take from A and give to B, B is better off, but A is worse off. Is this a problem? Yes, because interpersonal utility comparisons are impossible. Utility only makes sense within a system. It is ordinal, so I may prefer product X to product Y. It is not cardinal, so it cannot be quantified, let alone compared between people. The only way to make society better off objectively is if every member affected is better off and no one is worse off. When you impose government coercion you immediately have this negative effect and society is not “better off.”

Your question arises out of a selfish desire - where is MY cream soda? What is this special entitlement you have, sir? YOUR cream soda? Note that this didn’t even exist for you before the mom and pop store sold it. There is no “natural right” or “natural entitlement” to it. Even if there were, no one has a “natural obligation” to give it to you.

“We” (whatever that means) don’t have to draw a line anywhere because the line is not ours to draw, and the line cannot be “properly drawn.” If you’re so concerned and really like mom and pop stores over Walmart, convince people not to shop at Walmart.

I am sure JJ could break this down much better than I can. I hope you wait around until he also addresses the issue.

14

FotH, game theory applied to economics tells us that oligopolies and cartels don’t typically work. In fact, the Nash equilibrium out of game theory is a higher quantity produced than would be by a single monopoly.

Plus, FotH, it has been shown (and is obvious) that the prisoner’s dilemma example is incomplete when applied to a situation where repeated interactions occur, because actors can choose different outcomes based on previous experiences. This is what happens in markets - consumers have memories and are not just “lowest-price-takers.”

15

Then those stores would go out of business because they are trying to sell things people don’t want.

16

“Then those stores would go out of business because they are trying to sell things people don’t want.”

Really? Is it that I don’t want the cream soda with honey or is it because it’s not available to me any longer because the mom-and-pop store closed down as they couldn’t compete? Should I drive 35 minutes to the next place that sells the brand I like? not always practical.

You can say all you want that a Wal-Mart has never caused a store to close down but in my example given there is ample proof that Wal-Mart caused the store I worked for to go out of business. Wal-Mart has the ultimate ability to negotiate prices, how could they not push a store out of business?

If I could go to store A and be $10 richer than if I went to store B then what is my incentive to go to store B?

It’s not a matter of better products it’s a matter of mass population willing to give up certain goods or brands to save money.

I don’t even like cream soda by the way, just playing devils advocate.

17

It seems that you define “beneficial to society” as “beneficial to me”. Quite interesting.

It’s customers that push businesses out of business. Not other businesses. Ford customers “pushed” horse-pulled carriages out of business. Computer buyers “pushed” type-machine makers out of business. Being pushed out of business happens all the time. Staying in business forever is not a right, not an entitlement.

You tell me.

Whatever voluntary action/exchange transpires in the market is, by definition, better (more strongly preferred) for the parties involved than the action/exchange that did not happen.

Even if you did like it, it wouldn’t matter. Your right/entitlement to getting what you want/like (at the convenience and price of your choosing) is, by definition, someone else’s obligation to provide it to you.

18

“It seems that you define “beneficial to society” as “beneficial to me”. Quite interesting.”

Sounds more like democratic group thinking. The group says I no longer get the product. Fair to the individual?

19

“Whatever voluntary action/exchange transpires in the market is, by definition, better (more strongly preferred) for the parties involved than the action/exchange that did not happen.”

How is it voluntary if the options were limited in the first place?

For instance: You have the choice to vote for Obama & McCain, does that represent the will of the people? Or the will of the well established Media and duo-political system? The well established Wal-Mart

winners were chosen through an evolution of convenience.

When do we draw the line between beneficial and unbennificial?

20

What “group”? I don’t recall any “group” saying anything. In the towns I’ve lived in, individuals all make their own individual decisions, and prices go up or down, and products get reordered or discontinued, and stores stay open or close, based on the aggregate of all that individual action.

P.S.

“Fair”? What’s “fair”? And, who gets to decide that?

Were the options limited by force of another acting individual? Or through “reality” (aka “just the way things are”)? Are you going to argue that your choices in transportation are “involuntary” because you don’t have the option of teleportation?

First of all, we have to remember “society” doesn’t have a will…only individuals do. (I realize you didn’t use the word “society”, but it helps make the point. I don’t necessarily have a problem with the phrase “will of the people” so long as it is understood to mean the overall aggregation of individual decisions.)

Second, as bad as that example is, yes. Ultimately it is the people who determine those choices. The people by and large go along with the electoral process that produces those two candidates, as well as the process that picks between them. It’s much like how Milton Friedman spoke about the ultimate reason we have inflation…

You see, ultimately we have inflation because the people want it. They make it politically profitable for those in government to keep on printing. All people would have to do to get it to stop is the same thing they would do to make any change take place in government.

Now it’s important to note, I mention your example is a bad one because you are talking about governmental elections…government by definition is force…so it is quite difficult (impossible, in fact) to completely divorce involuntary action from any aspect involving government. In other words, it’s kind of a loaded example to use a government institution to try and prove a lack of voluntary action. Yes, to an extent the people are voluntarily choosing to be governed this way, and are voluntarily going along with the way in which those governors are selected…for if the public at large decided it didn’t like the current system, they could easily change it. However, anyone who doesn’t agree with the system is forced to go along with it if not enough other people agree with him enough to change it.

If you wish to argue a “limited choices = involuntary” point, you would need to pick a private market institution. Showing a government institution limits choices and then trying to use that as evidence of a lack of voluntary choices is a fool’s mate. You don’t even need the the “limited choices” part. You would just say “government results in non-voluntary arrangements” (something which of course everyone knows already anyway).

“Chosen through evolution” sounds like voluntary action to me.