Is Wal-mart a monopsony?
Traditionally a monopsony represents a buyer who buys less in order to force prices lower. Wal-mart uses their huge buying power to force prices lower. On the surface, this appears as a benefit to society and the end user or consumer appears to have an increased surplus – in the short run. I challenge that it in fact is a detriment to society. Wal-mart prides themselves on being the low cost leader and driving prices down. In order for a company to continue to have their product sold through Wal-mart, they must continue to cut their own costs in production. There are only so many cuts that can be made, and still make a profit, before the quality of the product starts to suffer. End user surplus is not increased in the long run due to cheaper products falling apart sooner and increasing the ‘durables’ replacement frequency rate. So the low price, cheap deal is not always the best deal. For an example, if I buy a pair of levi’s (red tag) at Target I will pay $50 and they will last a good six months. If I buy a pair of levi’s (orange tag) at Wal-mart for $30 they will last less than three months. So in one year I can spend $100 or $120 for the same time coverage for a product. Levi started the color tag to differentiate its product because it could not meet Wal-mart’s demands on price and keep its high quality standards, so it created a new lower standard for their product sold only at Wal-mart and continued to keep its high quality product that was sold at other retail outlets. If you go to Levi’s website , they won’t even list Wal-mart as a retailer that sells their merchandise. there is a point where a good name and quality go hand in hand. I hear (from teenagers) the new name is Wal-mart Fall-apart (the same name consumers gave K-mart in the late 80's).
Posted by Jada at 4/12/2007 09:17:00 AM