10/28/2009

Wal-Mart and price discrimination

In this competitive corporate world price discrimination is common world. I read Chapter 9 in the book and its talk about different kinds of pricing and discrimination. In this blog I talk about price discrimination. Today Wal-Mart is the largest retailer in the world. Wal-Mart generated $240 billion in sales, which accounted for a little less than 2.5 percent of the U.S. gross domestic product in 2002 (Bureau of Economic Analysis, U.S. Department of Commerce Website, and Fortune, February 18, 2003).

According to this article Wal-Mart competitors blame, Wal-Mart doing unfair competition and not provide predatory pricing. The predatory pricing means company must be shown that the prices of its products below its costs. Wal-Mart can earn an additional profit and competitive advantage because these suppliers are charging relatively higher prices retailers for the same product. U.S. retailers, such as Kmart or Target, were to make the same allegation against Wal-Mart and its U.S. suppliers. Example, a laundry-detergent manufacturer is price-discriminating if it sells its 64-oz container to Wal-Mart for a unit price of $1.79 but sells it to Kmart for $1.92.
Here I think price difference is common issue in business world. By contrast, in this article we saw suppliers and Wal-Mart price discrimination. I think they can earn more profit at discrimination than uniform price. I think because of this price and cost policy Wal-Mart becomes more profitable compare of other businesses. I think U.S suppliers doing complete price discrimination with other buyers.
What you all think about this case? Are they doing price discrimination?

http://findarticles.com/p/articles/mi_qa4026/is_200307/ai_n9292644/pg_2/?tag=content;col1

3 comments:

Brooklyn said...

It sounds like price descriminaiton to me. Wal-Mart's bully factor has a lot to do with the dealings involved in there day to day business operations. If you want to deal with Wal-Mart you might have to bend the rules.

Dr. Tufte said...

-3 on Rachel for multiple spelling and grammatical errors.

-1 on Brooklyn for spelling errors.

I don't think this is price discrimination at all. Wal-Mart does just about the opposite of price discrimination (which is directed at demanders) on every front.

Claims of predatory pricing are more supportable. However, predatory pricing is far easier to "prove" to juries and judges than it is to actually find in the data.

Also, the claim that Wal-Mart is 2.5% of the U.S. economy is fraudulent. This is comparing Wal-Mart's revenue (which is not value-added) to GDP (which is the sum of value-added). A comparison of value-added to GDP would be better (but hard to get data for), or one of gross income. The latter would probably show that Wal-Mart is more like 0.1% of the U.S. economy.

Tyler said...

Yes, Wal-mart does lower its prices to run off competition. Isn't this just a good business strategy? Do I think its fair they does this no. Getting back on track I found and article that explains why Wal-mart can get away with prices discrimination and one of the biggest reason it can do this is because it has the China connection.

http://www.pbs.org/wgbh/pages/frontline/shows/walmart/