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PE machinations aside, Sears and Kmart were dead for a long time before they closed the last stores. Their failures are free market successes, because the free

PE machinations aside, Sears and Kmart were dead for a long time before they closed the last stores. Their failures are free market successes, because the free market is all about vendors serving customers. Vendors that fail to do so, are expected to die. Sears grossly failed to do so, for a decade or two before being financially zeroed. If there's any argument for market failure in the Sears case, it is that the death took soo long to be finalized.

cogman10 2y ago
The issue here is that both Sears and Kmart were large players in a tight market with low competition. Both of their demises ultimately have allowed further consolidation of the market into fewer players. The fewer the players on the market, the more likely collusion and monopolistic behaviors start to form. But I also do not buy your premise that both companies were "dead companies lurching forward." Both companies had GOBS of assets that they could have liquidated and used to restructure into success. Those gobs of assets WERE liquidated but instead of being used to serve vendors or customers, they were used to enrich the shareholders. The failure here is that this behavior of pillaging a company to it's detriment is something that could happen to any business. It wasn't done out of stupidity or ignorance, it was a malicious act of greed. The problem I have with the free market hypothesis is it works only when there are many players on the market. However, entry into the market is by it's nature expensive and the economies of scale practically guarantee monopolistic end-states. Consider, for example, the current state of the semiconductor industry. If Intel fails, would that be a free market success story? I would argue no because the market, particularly around fabrication, is already hugely concentrated into very few key players. We are not going to see a new cutting edge fab company (barring trust busting). This consolidation action is happening up and down the market in everything from food to healthcare. We are actively seeing the death of small time farmers because of consolidation in meatpacking, groceries, and milling. Because a big mill doesn't want to deal with some 100acre farmer, they are actively locking them out of participation. And because a company like Nestle doesn't want to deal with 100 mills, smaller mills are being locked out of the market. These actions are all free market. I call the death a Sears a failure in the market because it kills off competition. The only time it could be a market success story is if we had an actively competitive market with a large number of players.
- quesera 2y ago
  I agree with the bulk of this! But I maintain that the failure of Sears, Roebuck & Co. was the free market doing exactly what it's supposed to do. Market distortions due to consolidation are a huge problem. But Sears was not fit for survival and there's no reason to believe that cash-for-assets could have been turned into a new viable business of any kind. There was nothing to salvage out of the business model, vendor relationships, retail locations, consumer brand equity. Nothing. They abused their brand (and their Craftsman etc house brands!) for years. Some macro events and shifts were clearly out of their control and might have been insurmountable anyway, but the brand damage was entirely self-inflicted, and ultimately the only thing that might have saved the rest. There was nothing left except lease obligations, slow-moving inventory, and nostalgia. But enough about Sears. Your point, IIMBSB, is that the free market doesn't necessarily produce the most viable ecosystem. No argument there -- the natural end state of a free market appears to be 85+% monopoly or duopoly, and this is harmful to consumers and the economy!
  - cogman10 2y ago
    > There was nothing to salvage out of the business model, vendor relationships, retail locations, consumer brand equity. Nothing. I have to somewhat disagree here. Amazon purchased wholefoods in 2017 to bootstrap their own distribution system. One year after sears went under. My point is that sears had room and time for years to pivot their business model into something more profitable. They had the land, warehouses, and distribution system bigger than what amazon paid $13 billion to acquire. Heck, for fairly little money, sears could have entered or expanded into the shipping industry to compete with FedEx and UPS. They could have partnered with Amazon to handle their shipping. The free market failure here is that the management team did nothing wrong by shareholders which in turn killed the company. They didn't die because they were being out competed, they died because management valued the next quarters profits over the long term success of the business. The fact that the free market doesn't really care if a business does that is where it fails. The negative social impacts of large companies failing is tremendous and another problem with the free market. While business failing is value neutral for the free market, it's economically and socially a disaster.

cogman10 2y ago

The issue here is that both Sears and Kmart were large players in a tight market with low competition. Both of their demises ultimately have allowed further consolidation of the market into fewer players. The fewer the players on the market, the more likely collusion and monopolistic behaviors start to form. But I also do not buy your premise that both companies were "dead companies lurching forward." Both companies had GOBS of assets that they could have liquidated and used to restructure into success. Those gobs of assets WERE liquidated but instead of being used to serve vendors or customers, they were used to enrich the shareholders. The failure here is that this behavior of pillaging a company to it's detriment is something that could happen to any business. It wasn't done out of stupidity or ignorance, it was a malicious act of greed. The problem I have with the free market hypothesis is it works only when there are many players on the market. However, entry into the market is by it's nature expensive and the economies of scale practically guarantee monopolistic end-states. Consider, for example, the current state of the semiconductor industry. If Intel fails, would that be a free market success story? I would argue no because the market, particularly around fabrication, is already hugely concentrated into very few key players. We are not going to see a new cutting edge fab company (barring trust busting). This consolidation action is happening up and down the market in everything from food to healthcare. We are actively seeing the death of small time farmers because of consolidation in meatpacking, groceries, and milling. Because a big mill doesn't want to deal with some 100acre farmer, they are actively locking them out of participation. And because a company like Nestle doesn't want to deal with 100 mills, smaller mills are being locked out of the market. These actions are all free market. I call the death a Sears a failure in the market because it kills off competition. The only time it could be a market success story is if we had an actively competitive market with a large number of players.

quesera 2y ago
I agree with the bulk of this! But I maintain that the failure of Sears, Roebuck & Co. was the free market doing exactly what it's supposed to do. Market distortions due to consolidation are a huge problem. But Sears was not fit for survival and there's no reason to believe that cash-for-assets could have been turned into a new viable business of any kind. There was nothing to salvage out of the business model, vendor relationships, retail locations, consumer brand equity. Nothing. They abused their brand (and their Craftsman etc house brands!) for years. Some macro events and shifts were clearly out of their control and might have been insurmountable anyway, but the brand damage was entirely self-inflicted, and ultimately the only thing that might have saved the rest. There was nothing left except lease obligations, slow-moving inventory, and nostalgia. But enough about Sears. Your point, IIMBSB, is that the free market doesn't necessarily produce the most viable ecosystem. No argument there -- the natural end state of a free market appears to be 85+% monopoly or duopoly, and this is harmful to consumers and the economy!
- cogman10 2y ago
  > There was nothing to salvage out of the business model, vendor relationships, retail locations, consumer brand equity. Nothing. I have to somewhat disagree here. Amazon purchased wholefoods in 2017 to bootstrap their own distribution system. One year after sears went under. My point is that sears had room and time for years to pivot their business model into something more profitable. They had the land, warehouses, and distribution system bigger than what amazon paid $13 billion to acquire. Heck, for fairly little money, sears could have entered or expanded into the shipping industry to compete with FedEx and UPS. They could have partnered with Amazon to handle their shipping. The free market failure here is that the management team did nothing wrong by shareholders which in turn killed the company. They didn't die because they were being out competed, they died because management valued the next quarters profits over the long term success of the business. The fact that the free market doesn't really care if a business does that is where it fails. The negative social impacts of large companies failing is tremendous and another problem with the free market. While business failing is value neutral for the free market, it's economically and socially a disaster.