Harper’s Magazine: Break Up Wal-Mart

Posted by on Jun 20, 2006 in updates | No Comments

The July issue of Harper’s Magazine includes an essay on Wal-Mart by Barry Lynn, senior fellow at the New America Foundation. Lynn lays out a short history of American antitrust law and argues that Wal-Mart’s market dominance constitutes a monopsony that merits the attention of state and federal lawmakers. Excerpts below.

Examples of monopsony can be difficult to pin down, but we are in luck in that today we have one of the best illustrations of monopsony pricing power in economic history: Wal-Mart. There is little need to recount at any length the retailer’s power over America’s marketplace. For our purposes, a few facts will suffice – that one in every five retail sales in America is recorded at Wal-Mart’s cash registers; that the firm’s revenue nearly equals that of the next six retailers combined; that for many goods, 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…

The idea that Wal-Mart’s power actually subverts the functioning of the free market will seem shocking to some. After all, the firm rose to dominance in the same way that many thousands of other companies before it did – through smart innovation, a unique culture, and a focus on serving the customer. Even a decade ago, Americans could fairly conclude that, in most respects, Wal-Mart’s rise had been good for the nation. But the issue before us is not how Wal-Mart grew to scale but how Wal-Mart uses its power today and will use it tomorrow. The problem is that Wal-Mart, like other monopsonists, does not participate in the market so much as use its power to micromanage the market, carefully coordinating the actions of thousands of firms from a position above the market…

In essence, Wal-Mart has grown so powerful that it can turn even its largest suppliers, and entire oliogopolized industries, into extensions of itself. The effects of this practice are most obvious in Wal-Mart’s horizontal competition against other retailers…

As we make our case, we should be sure to call one expert witness in particular. Last year, Wal-Mart CEO Lee Scott called on the British government to take antitrust action against the U.K. grocery chain Tesco. Whenever a firm nears a 30 percent share of any market, Scott said, “there is a point where the government is compelled to intervene.” Now, Wal-Mart has never been shy about using antitrust for its own purposes. In addition to the Toys R Us case, the firm was also the instigator of a Sherman Act suit against Visa and MasterCard. And so such a statement, by the CEO of a firm that already controls upward of 30 percent of many markets and has announced plans to more than double its sales, sets a new standard for hubris. It also sets a simple goal for us – elect representatives who will take Citizen Scott at his word.

Leave a Reply