eco questions pls...?

Question

Some companies advertise that they deal in high volume and pass the savings on to their customers. WalMart in particular advertises "Low Prices Every Day". Do you agree that this is a good business practice? Is it good for the consumer? The workers? The suppliers? The economy? Why or why not?

Answer 1

The practice of purchasing high volumes from suppliers in order to receive discounts (from the manufacturer; in addition to the larger scales of production and the associated efficiencies) is a common one, particularly in retail.

It is generally a preferable business practice because of the efficiencies involved. The consumer enjoys a lower price (thus increasing their utility, or "bang for the buck"). The suppliers operate at a higher level of output, which generally indicates a lower average cost (in an industry with returns to scale) and hence a higher profit due to more efficiency. The economy also benefits from higher efficiency because it takes less to bring something to the market.

Low prices don't especially mean anything to the workers unless they shop there. A lower price indicating a higher margin (difference between what is paid for the item and what it is sold for) may be passed on to the workers, so that they benefit directly.

WAL-MART IS A SPECIAL CASE, however, because of particulars.

Particular 1: Monopsony of employment. This means Wal-Mart is often the sole "purchaser" of labor in certain areas, or at least the largest, which takes away the competitive element for wages and hurts workers. Note that many factories in small towns are also monopsonists.

Particular 2: Monopsony of suppliers. Wal-Mart, as a business practice, attempts to be the sole distributor for certain vendors, and then demands a lower price which ultimately drives the vendor out of business. Such was the case with Rubbermaid.

Particular 3: Low prices aren't the sole benefit to consumers. Many of Wal-Mart's items carry low prices due to shoddy manufacture, which is why one sees margins of 80% or more on some items of clothing. The consumer is paying less but whether the quality is worth the price is questionable.

Particular 4: Credit growth has helped Wal-Mart substantially. Consumers, living off credit cards, LOVE to shop at Wal-Mart because of its variety of stuff. Consumers perceive a deal, and don't mind the additional debt accruing. This is more a fault of the financial companies, but Wal-Mart has enjoyed it.

Answer 2

They (walmart etc.,) are doing their bit in promoting their interests. Its upto us to buy (their thinking or products) is n't it?