4 ms·

Before sv did it, Walmart was famous for operating at a loss for years to kill local competitors who tried to spring up

throwawayboise 5y ago
My own observations of this are that it only works in smaller areas where there isn't enough critical mass to support a lot of choice in markets. Where I live, we have WalMart, Target, other national "big box" retailers, three different supermarket chains, and a pretty wide variety of locally-owned small specialty retailers. Could a town of 10,000 support this kind of diversity in retail? No. So there, WalMart wins. Before WalMaret, there was more local retail, but they were barely making a living.
- darkwizard42 5y ago
  This is the playbook that works for ridesharing as well (which seems to be an oft-cited example of this)... in a larger city the density of riders and drivers is sufficiently high the market is able to support a 2-company system. In smaller markets, it quickly tilts into one of companies because no driver will stay on a platform without demand (long wait times for a ride), and no rider will use a platform without sufficient supply (high ETAs).
deregulateMed 5y ago
I wonder if mom and pop shops were not as economical. I study consumer prices and I've found mom and pop shops are significantly more expensive than the big chains. I'm talking like 2x more expensive. This is in suburbia where there are lots of competition.
- Ericson2314 5y ago
  I think both are true. Anti-trust is a funny thing because one hand it is clearly needed for power dynamics, but on the other hand orthodox econ with its increasing price curves underestimates how many sorts of monopolies are in fact "natural". Put another way, anti-trust looks very different if one doesn't believe competition is a stable outcome in the long term. In the specific Walmart/Amazon case, I would like to see a nationalized warehouse network run by the postal service. Warehousing-distribution of goods is just "content-addressed post".
  - camjohnson26 5y ago
    Every economy has information networks like roads, broadband, shipping services, etc, and government’s role in the economy should be to keep those networks fair and efficient. Free market competition is the best way to handle price discovery, but it becomes a problem when one company can take over the full information network. Most of the massive companies today have successfully captured an entire network or a huge part of one, Facebook with the social graph, Microsoft with OS, Amazon with AWS and online shopping, Apple with mobile devices. Any antitrust legislation should focus on opening up those networks, but without introducing the inefficiencies that show up any time government takes something over because of misaligned incentives.
  - native_samples 5y ago
    It seems very unlikely that a government run warehouse network would have invested into Kiva Robotics like Amazon did. Their warehouse tech is a big part of their competitive advantage.
- azinman2 5y ago
  Part of that is because anti-trust law used to prevent discounts based upon scale, and that stop being enforced decades ago.
  - JumpCrisscross 5y ago
    > anti-trust law used to prevent discounts based upon scale Do you have a source for this?
    - azinman2 5y ago
      It’s called the Robinson-Patman act. The legislative purpose was to amend the inadequate Clayton Act so as ". .. to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power." [1] It’s now interpreted based upon cost of manufacturing, so the FTC has this Q&A [2]: > Q: I operate two stores that sell compact discs. My business is being ruined by giant discount chains that sell their products for less than my wholesale cost. What can I do? A: Discount chains may be able to buy compact discs at a lower wholesale price because it costs the manufacturer less, on a per-unit basis, to deal with large-volume customers. If so, the manufacturer may have a "cost justification" defense to the differential pricing and the policy would not violate the Robinson-Patman Act. Note as [1] describes, this act was done in reaction to chains causing much distress. The nature of manufacturing changed, and as the notion from the 60s/70s that consumer pricing was the most important trait in anti-trust law, so enforcement stopped and now we have chains everywhere. [1] https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?article=3621&context=lawreview https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?arti... [2] https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/price-discrimination-robinson-patman https://www.ftc.gov/tips-advice/competition-guidance/guide-a...
6gvONxR4sf7o 5y ago
Amazon too, right?
- Uhhrrr 5y ago
  Heck, Standard Oil was accused of this. EDIT: Although it may well be that they actually didn't: http://www-personal.umich.edu/~twod/oil-ns/articles/research-oil/research-oil/john_mcgee_predatory_pricing_standard_oil1958.pdf http://www-personal.umich.edu/~twod/oil-ns/articles/research...
autokad 5y ago
Its my understanding that walmart sells at discount prices, not sells at a loss. they have scale that local competitors do not. there's a huge difference
- cyberbanjo 5y ago
  Many retail stores price certain items at a loss, called loss-leaders.
  - slim 5y ago
    Loss leaders does not mean you are selling at loss. Small businesses do use loss leaders to generate leads. It costs less than marketing. It just means you price a product under the price of the market (you don't even need to lose money on it) to attract customers who will hopefully buy other products.
    - sushid 5y ago
      Loss leader literally definitionally means that you're selling that good or service at a loss. Yes, you hope you recoup the losses by selling more goods and services but you do lose money on that good/service.
clairity 5y ago
except walmart didn't operate at a loss in most cases. they figured out early on that they could operate profitably on the float between when they took delivery and sold items (usually a few days) and when they paid their suppliers for them (weeks, sometimes months, later). in effect, these were continual short-term zero-interest loans that, combined with predatory labor pay rates with socialized costs, often exceeded operating needs, so stores often generated profit entirely from finance rather than operations, and thus could offer cut-throat prices. it's become a classic business case study in cash flow management taught in business schools and employed quite sucessfully by other mega-retailers like carrefour in france.

My own observations of this are that it only works in smaller areas where there isn't enough critical mass to support a lot of choice in markets. Where I live, we have WalMart, Target, other national "big box" retailers, three different supermarket chains, and a pretty wide variety of locally-owned small specialty retailers. Could a town of 10,000 support this kind of diversity in retail? No. So there, WalMart wins. Before WalMaret, there was more local retail, but they were barely making a living.

darkwizard42 5y ago
This is the playbook that works for ridesharing as well (which seems to be an oft-cited example of this)... in a larger city the density of riders and drivers is sufficiently high the market is able to support a 2-company system. In smaller markets, it quickly tilts into one of companies because no driver will stay on a platform without demand (long wait times for a ride), and no rider will use a platform without sufficient supply (high ETAs).

deregulateMed 5y ago

I wonder if mom and pop shops were not as economical. I study consumer prices and I've found mom and pop shops are significantly more expensive than the big chains. I'm talking like 2x more expensive. This is in suburbia where there are lots of competition.

Ericson2314 5y ago
I think both are true. Anti-trust is a funny thing because one hand it is clearly needed for power dynamics, but on the other hand orthodox econ with its increasing price curves underestimates how many sorts of monopolies are in fact "natural". Put another way, anti-trust looks very different if one doesn't believe competition is a stable outcome in the long term. In the specific Walmart/Amazon case, I would like to see a nationalized warehouse network run by the postal service. Warehousing-distribution of goods is just "content-addressed post".
- camjohnson26 5y ago
  Every economy has information networks like roads, broadband, shipping services, etc, and government’s role in the economy should be to keep those networks fair and efficient. Free market competition is the best way to handle price discovery, but it becomes a problem when one company can take over the full information network. Most of the massive companies today have successfully captured an entire network or a huge part of one, Facebook with the social graph, Microsoft with OS, Amazon with AWS and online shopping, Apple with mobile devices. Any antitrust legislation should focus on opening up those networks, but without introducing the inefficiencies that show up any time government takes something over because of misaligned incentives.
- native_samples 5y ago
  It seems very unlikely that a government run warehouse network would have invested into Kiva Robotics like Amazon did. Their warehouse tech is a big part of their competitive advantage.
azinman2 5y ago
Part of that is because anti-trust law used to prevent discounts based upon scale, and that stop being enforced decades ago.
- JumpCrisscross 5y ago
  > anti-trust law used to prevent discounts based upon scale Do you have a source for this?
  - azinman2 5y ago
    It’s called the Robinson-Patman act. The legislative purpose was to amend the inadequate Clayton Act so as ". .. to curb and prohibit all devices by which large buyers gained discriminatory preferences over smaller ones by virtue of their greater purchasing power." [1] It’s now interpreted based upon cost of manufacturing, so the FTC has this Q&A [2]: > Q: I operate two stores that sell compact discs. My business is being ruined by giant discount chains that sell their products for less than my wholesale cost. What can I do? A: Discount chains may be able to buy compact discs at a lower wholesale price because it costs the manufacturer less, on a per-unit basis, to deal with large-volume customers. If so, the manufacturer may have a "cost justification" defense to the differential pricing and the policy would not violate the Robinson-Patman Act. Note as [1] describes, this act was done in reaction to chains causing much distress. The nature of manufacturing changed, and as the notion from the 60s/70s that consumer pricing was the most important trait in anti-trust law, so enforcement stopped and now we have chains everywhere. [1] https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?article=3621&context=lawreview https://scholarship.law.stjohns.edu/cgi/viewcontent.cgi?arti... [2] https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/price-discrimination-robinson-patman https://www.ftc.gov/tips-advice/competition-guidance/guide-a...

6gvONxR4sf7o 5y ago

Amazon too, right?

Uhhrrr 5y ago
Heck, Standard Oil was accused of this. EDIT: Although it may well be that they actually didn't: http://www-personal.umich.edu/~twod/oil-ns/articles/research-oil/research-oil/john_mcgee_predatory_pricing_standard_oil1958.pdf http://www-personal.umich.edu/~twod/oil-ns/articles/research...

autokad 5y ago

Its my understanding that walmart sells at discount prices, not sells at a loss. they have scale that local competitors do not. there's a huge difference

cyberbanjo 5y ago
Many retail stores price certain items at a loss, called loss-leaders.
- slim 5y ago
  Loss leaders does not mean you are selling at loss. Small businesses do use loss leaders to generate leads. It costs less than marketing. It just means you price a product under the price of the market (you don't even need to lose money on it) to attract customers who will hopefully buy other products.
  - sushid 5y ago
    Loss leader literally definitionally means that you're selling that good or service at a loss. Yes, you hope you recoup the losses by selling more goods and services but you do lose money on that good/service.

clairity 5y ago

except walmart didn't operate at a loss in most cases. they figured out early on that they could operate profitably on the float between when they took delivery and sold items (usually a few days) and when they paid their suppliers for them (weeks, sometimes months, later). in effect, these were continual short-term zero-interest loans that, combined with predatory labor pay rates with socialized costs, often exceeded operating needs, so stores often generated profit entirely from finance rather than operations, and thus could offer cut-throat prices. it's become a classic business case study in cash flow management taught in business schools and employed quite sucessfully by other mega-retailers like carrefour in france.