Ramblings & ephemera

Wal-Mart’s monopsony power damages its vendors

From Barry C. Lynn’s “The Case for Breaking Up Wal-Mart” (Harper’s: 24 July 2006):

Instead, the firm is also one of the world’s most intrusive, jealous, fastidious micromanagers, and its aim is nothing less than to remake entirely how its suppliers do business, not least so that it can shift many of its own costs of doing business onto them. In addition to dictating what price its suppliers must accept, Wal-Mart also dictates how they package their products, how they ship those products, and how they gather and process information on the movement of those products. Take, for instance, Levi Strauss & Co. Wal-Mart dictates that its suppliers tell it what price they charge Wal-Mart’s competitors, that they accept payment entirely on Wal-Mart’s terms, and that they share information all the way back to the purchase of raw materials. Take, for instance, Newell Rubbermaid. Wal-Mart controls with whom its suppliers speak, how and where they can sell their goods, and even encourages them to support Wal-Mart in its political fights. Take, for instance, Disney. Wal-Mart all but dictates to suppliers where to manufacture their products, as well as how to design those products and what materials and ingredients to use in those products. Take, for instance, Coca-Cola [… Wal-Mart decided that it did not approve of the artificial sweetener Coca-Cola planned to use in a new line of diet colas. In a response that would have been unthinkable just a few years ago, Coca-Cola yielded to the will of an outside firm and designed a second product to meet Wal-Mart’s decree.]. …

Wal-Mart and a growing number of today’s dominant firms, by contrast, are programmed to cut cost faster than price, to slow the introduction of new technologies and techniques, to dictate downward the wages and profits of the millions of people and smaller firms who make and grow what they sell, to break down entire lines of production in the name of efficiency. The effects of this change are clear: We see them in the collapsing profit margins of the firms caught in Wal-Mart’s system. We see them in the fact that of Wal-Mart’s top ten suppliers in 1994, four have sought bankruptcy protection.

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