The Antitrust Implications Of Wal Mart's Business Practices

3315 words - 13 pages

The size of Wal-Mart is astounding. It is not only the largest company in the world, but in the history of the world. It is also the largest retailer in the United States, Mexico, and Canada. Because of its sheer size and impressive market power, Wal-Mart has been the envy of competitors, the bane of suppliers, and a godsend to consumers. Their efficiency gains and economies of scale enable them to charge lower prices than many of their competitors. Because of this market power, Wal-Mart is able to induce concessions from suppliers that want in on a piece of the action. On the tail end, customers may have mixed feelings about Wal-Mart, but they do know that Wal-Mart is able to give them the goods they want at the cheapest price. Wal-Mart's ability to persuade its suppliers to furnish them with the lowest possible prices is a concern to some. Antitrust law is the legal tool that the public and government have to combat anticompetitive business practices'. It is my intent to support the argument that Wal-Mart should indeed raise some legal eyebrows, but whether or not they are guilty of antitrust violations remains to be seen.To better understand the possible harms antitrust attempts to protect consumers from, an explanation of relevant economic theory is warranted. In order to make a distinction between harm and benefit, it is imperative to understand the theory of monopoly, monopsony, and bilateral monopoly.A monopoly occurs when there is one dominant seller in the market. This seller faces a downward sloping demand curve, i.e. the market demand curve. The negative sloping of the demand curve means that in order to sell more products, the firm must lower its price. Thus, the firm's marginal revenue curve lies below the demand curve. The upward slope of the marginal cost curve, which symbolizes the added cost for producing one more unit, intersects with both the marginal revenue and demand curves for the firm. Monopolistic firms will choose an output where marginal revenue equals marginal cost. In the long run equilibrium, these firms will earn zero profits, as they must keep their prices low enough to deter entry into the market.1 The monopoly firm will restrict output to a level that is lower than there would be in a competitive market. Monopolization is the process by which large sellers utilize their market power to extract economic rents from buyers in the market. It is a transfer of wealth from the demand side to the supply side, and makes consumers worse off via dead weight loss."Buyer power" is the ability of the demand side of the market to exercise market power over suppliers to reduce prices below the level that would emerge in the competitive market. This ability gives rise to monopsonies, which are the mirror images of monopolies in that there is a transfer of economic rents from one side of the market to another, in this case from the suppliers to the buyers.Bilateral monopoly is a situation that involves a monopolist supplier...

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