The Antitrust Implications of Wal-Mart's Business Practices

Essay by ngKenzyUniversity, Bachelor's May 2006

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The size of Wal-Mart is astounding. It is not only the largest company in the world, but in the history of the world. It is also the largest retailer in the United States, Mexico, and Canada. Because of its sheer size and impressive market power, Wal-Mart has been the envy of competitors, the bane of suppliers, and a godsend to consumers. Their efficiency gains and economies of scale enable them to charge lower prices than many of their competitors. Because of this market power, Wal-Mart is able to induce concessions from suppliers that want in on a piece of the action. On the tail end, customers may have mixed feelings about Wal-Mart, but they do know that Wal-Mart is able to give them the goods they want at the cheapest price. Wal-Mart's ability to persuade its suppliers to furnish them with the lowest possible prices is a concern to some.

Antitrust law is the legal tool that the public and government have to combat anticompetitive business practices'. It is my intent to support the argument that Wal-Mart should indeed raise some legal eyebrows, but whether or not they are guilty of antitrust violations remains to be seen.

To better understand the possible harms antitrust attempts to protect consumers from, an explanation of relevant economic theory is warranted. In order to make a distinction between harm and benefit, it is imperative to understand the theory of monopoly, monopsony, and bilateral monopoly.

A monopoly occurs when there is one dominant seller in the market. This seller faces a downward sloping demand curve, i.e. the market demand curve. The negative sloping of the demand curve means that in order to sell more products, the firm must lower its price. Thus, the firm's marginal revenue curve lies below the demand curve. The...