Criticism of Wal-Mart

[JMartins]

I'd appreciate it if someone here could respond to the following criticism of Wal-Mart. Is there a logical fallacy in this argument, or will big corporations such as Wal-Mart profit from employing such tactics? I think I read something about this in "Capitalism: The Unknown Ideal", but can't recall what it was.

Whenever a new Wal-Mart moves into an area, they start out with artificially lower prices (often taking a loss, but hey--they can afford it in the big picture) specifically in order to get people excited about their fabulous low prices and to out-compete pre-existing local businesses. Then once the competition is gone, they slowly jack their prices up to a more-profitable level, sometimes even higher than the now-nonexistent competition's prices had been. I have heard this story in various forms over the years, first from frustrated community members near a new Wal-Mart in Mexico, then from a friend who worked at a Wal-Mart in Idaho, and most recently from talking heads/analysts. I have also observed it for myself in my own community now.

[01503]

1. People want Wal-Mart there. It wouldn't exist if people didn't buy from it.

2. If they jack up prices, that's their right. That would be the time for another company to open up/move into town and take Wal-Mart's business.

[Jake_Ellison]

"Then once the competition is gone, they slowly jack their prices up to a more-profitable level, sometimes even higher than the now-nonexistent competition's prices had been. "

The obvious fallacy: Prices now, compared to prices that were.

The prices from ten years ago, of the people who were driven out of business ten years ago, are compared to the prices Walmart has today.

Inflation is conveniently forgotten about for the sake of the argument.

However, the main thing is: the "sometimes even higher" phrasing, which means that the small businesses are not being judged solely on the standard of prices. In the "most" cases, where Walmart doesn't have the "sometimes" higher prices, the mom&pop business isn't being denounced as greedy and evil.

Meaning that the real cause of denouncing Walmart is not their prices, as the writer claims explicitly, there's an obvious moral argument that doesn't even have to be said, everybody knows. It means that the only possible argument in favor of Walmart is that they are efficient (necessary evil), and that's what we are addressing here: that "sometimes" means that on top of Walmart being greedy and evil, sometimes they're also inefficient, so don't listen to anyone who is making the necessary evil argument.

What needs to be challenged, in the end, is the morality that "sometimes" implies. You can challenge the idea that prices are higher (even though he isn't even claiming that, he knows they aren't. That's why he says sometimes.), but you will get nowhere.

The question to be asked is "Who gets to set the prices?". Who decides whether someone should be allowed to open a store or not?

If it is the government, then by what standard?

If no answer is given to those three questions, that means that the author of that argument needs to shut up and listen. He has no moral right to continue spewing unfounded drivel.

Edited February 20, 2009 by Jake_Ellison

[JeffS]

I'd appreciate it if someone here could respond to the following criticism of Wal-Mart. Is there a logical fallacy in this argument, or will big corporations such as Wal-Mart profit from employing such tactics? I think I read something about this in "Capitalism: The Unknown Ideal", but can't recall what it was.

Rand addresses this in C:UI by pointing out that if Wal-Mart (she speaks generically, of course) raises its prices above what they were prior to entering the market, then new competition will simply come in and undercut it. Will Wal-Mart then drop its prices again with the intention of raising them once the competition is again run out of the market? No rational company (and therefore, no economically persistent company) would act this way. It would be impossible to plan revenues, therefore impossible to make any kind of budgeting, or expansion plans at all.

[JMartins]

Thanks for providing me with some very insightful arguments.

[softwareNerd]

You've got answers to the hypothetical. In addition, in fact WalMart's success is not because of some initial lower prices. They are successful because they routinely charge mush less than the competition, and continue to do so, for decades!

[Jake_Ellison]

Oh, absolutely. That whole tactic of starting out with unrealistically low prices is used by all types of startup businesses, small or large, to attract clients who will then know whatever they have to offer first hand. It's just another form of marketing.

Saying that they are doing it to kill the competition can be just as well said to anyone who is doing something to promote themselves or their own interests. When I like a girl, I don't flirt with her to kill the competition, I do it because I want her. Yet, the dummy who wants the same thing but doesn't have the ability to get it more often than not will hate me, and feel personally wronged by me. This is the same exact claim, and the consequences are the same: I'm happy, and he is even more miserable than if he realised that I'm not his problem, his own methods of treating girls like they owe him something are. And someone stepping in and enforcing his claim that I should stay away would not help him at all. All that would do is make everyone miserable.

[JMartins]

Saying that they are doing it to kill the competition can be just as well said to anyone who is doing something to promote themselves or their own interests. When I like a girl, I don't flirt with her to kill the competition, I do it because I want her. Yet, the dummy who wants the same thing but doesn't have the ability to get it more often than not will hate me, and feel personally wronged by me. This is the same exact claim, and the consequences are the same: I'm happy, and he is even more miserable than if he realised that I'm not his problem, his own methods of treating girls like they owe him something are. And someone stepping in and enforcing his claim that I should stay away would not help him at all. All that would do is make everyone miserable.

Great analogy Jake, thanks.

[phibetakappa]

Without assuming the claims in the quote are true, and arguing for free markets, I would point out the following elements of this quote:

... start out with artificially lower prices (often taking a loss...

The term "artificial" here is dubious. What do we contrast the term "artificial" with, in relation to prices? What is a non-artificial price? All prices are artificial, i.e., man-made.

In general, it is very difficult to find a valid use for the term "artificial." Often I've seen it contrasted with the term "natural," but this is dubious because it implies that man-made goods are artificial, and unnatural, or against nature, or outside nature; as if man as such is an "unnatural" entity. This idea is one of the roots of the man-hating fad, environmentalism.

In the context of Metaphysics, "artificial" seems like a decent analog to the idea of man-made, and would be contrasted with the idea of the "metaphysically given." However, this is a very different thing than contrasting "natural vs. unnatural." What is an example of something "unnatural?" I.e., what kind of effect does not arise from the nature/identity of an object(s) given? "Entities of a certain kind, act a certain way." (law of causality)

Further, there's nothing "unnatural" about using a loss-leader to give people incentive to patron one's store. There's nothing "unnatural" about the resulting exchange(s). There's nothing "unnatural" about the resulting price, i.e., the amount of money for which the transaction took place.

Prior to the sale of the marked-down item, the business man may call out the asking price he wants. In the case of modern business, the asking price is often set, and marked on the item well in advance to being directly offered to potential buyers, i.e., before it is place on a shelf for review by a customer.

If that item did not sell, even at the marked down asking price, the vendor would continue to mark the item down, or remove it from the shelves, or just give it away. Volition is still in play, and the process is objective.

The same point can be made from the perspective of the potential buyer of the good. In a fast exchange market, the bartering is very rapid, as asking prices and bids are called out in the moment. But in a modern business this process still exists but is slowed down, such that the customers "bid" is voice by his refusal to buy the good. His "offer" is not called out, because there's no seller, standing there to reevaluate the potential exchange. But the customer still has volition, to buy the good, or not, and the process is objective.

There is no physical force/compulsion or threat of force.

The fact is Wal-Mart has applied the very “natural” recognition of the phenomena of "economy in scale", by finding a vendor who is able to produce goods in a massive scale, i.e., China, therefore supplying massive amounts goods at a reduced price because their cost is lower.

This very natural use of reason by the procurement managers at Wal-Mart, provides then with a surplus of capital they can then invest in their business. The key word here is “invest.”

There is no difference between an person or business taking a surplus of wealth and in effect, removing it from their possession for a long time, for the promise of some worthy return on that investment later. E.g., we take our surplus of money and invest it in a bank account for some promised interest rate.

In the context of a business, often a business buys an inventory of goods, i.e. creates a stock of goods, they can warehouse, so it will be available in quantity to facilitate rapid exchanges. E.g., if we are selling cars, we may stock 12 cars at one time, without having any buyers lined up, so that we don’t have to expend time and effort to order the cars one at a time as each order is placed.

We do not believe that the car dealer has bought the 12 cars at a loss, or that he is losing because the cars are just sitting there in inventory for some time.

If a company did use a loss-leader, i.e., buying a good at one price, and offering it at a mark down, below its cost, they are doing so to purchase something else. They are using the loss leader as a kind of currency, and they are making a kind of investment. They are investing in building a market, i.e., they are providing incentive for potential buyers to congregate to their particular location for “voicing” potential goods for sales, and receiving offers for exchange.

They are subsidizing potential customers to take the risk of coming to “learn” a new market; subsidizing them for their potential loss, which would occur if the new business turns out to be just a bunch of hype, and/or does not live up to the hype, marketing, gossip, rumor etc.

The implicit question on the lips of potential customers is, “why should I drive all the way out to your new business, look around and learn something new? Why should I expend the time to figure out your particular angle or product offering? Why shouldn’t I just continue to use my current vendors? What’s in it for me?” The loss-leader or “Grand Opening Sale,” is a means of investing in a new market.

A “market” as such, may be an abstract object, but it is a product, which has to be built, and for which can command a price. Some markets are better than others. Wal-Mart, invests in the market with their loss-leader, sending an economic message to potential customers, that if they frequent their market, Wal-Mart will be commit to providing good deals.

A loss leader is the price of getting potential customers to expend the effort of not only driving to the new market, but of learning the nature of the new market and its conventions, layout, quality, etc.

The loss-leader is like a “retainer” or a “good faith payment” in the case of using a real-estate agent.

I highly recommend Harry Binswanger's recently published course, "Philosophic Issues in Economics", which clarifies many of the principles needed to understand modern economics.

http://www.aynrandbookstore2.com/prodinfo.asp?number=DB76M

Regards,

Michael

[fleeting]

Without assuming the claims in the quote are true, and arguing for free markets, I would point out the following elements of this quote:

The term "artificial" here is dubious. What do we contrast the term "artificial" with, in relation to prices? What is a non-artificial price? All prices are artificial, i.e., man-made.

In general, it is very difficult to find a valid use for the term "artificial." Often I've seen it contrasted with the term "natural," but this is dubious because it implies that man-made goods are artificial, and unnatural, or against nature, or outside nature; as if man as such is an "unnatural" entity. This idea is one of the roots of the man-hating fad, environmentalism.

In the context of Metaphysics, "artificial" seems like a decent analog to the idea of man-made, and would be contrasted with the idea of the "metaphysically given." However, this is a very different thing than contrasting "natural vs. unnatural." What is an example of something "unnatural?" I.e., what kind of effect does not arise from the nature/identity of an object(s) given? "Entities of a certain kind, act a certain way." (law of causality)

Further, there's nothing "unnatural" about using a loss-leader to give people incentive to patron one's store. There's nothing "unnatural" about the resulting exchange(s). There's nothing "unnatural" about the resulting price, i.e., the amount of money for which the transaction took place.

Prior to the sale of the marked-down item, the business man may call out the asking price he wants. In the case of modern business, the asking price is often set, and marked on the item well in advance to being directly offered to potential buyers, i.e., before it is place on a shelf for review by a customer.

If that item did not sell, even at the marked down asking price, the vendor would continue to mark the item down, or remove it from the shelves, or just give it away. Volition is still in play, and the process is objective.

The same point can be made from the perspective of the potential buyer of the good. In a fast exchange market, the bartering is very rapid, as asking prices and bids are called out in the moment. But in a modern business this process still exists but is slowed down, such that the customers "bid" is voice by his refusal to buy the good. His "offer" is not called out, because there's no seller, standing there to reevaluate the potential exchange. But the customer still has volition, to buy the good, or not, and the process is objective.

There is no physical force/compulsion or threat of force.

The fact is Wal-Mart has applied the very “natural” recognition of the phenomena of "economy in scale", by finding a vendor who is able to produce goods in a massive scale, i.e., China, therefore supplying massive amounts goods at a reduced price because their cost is lower.

This very natural use of reason by the procurement managers at Wal-Mart, provides then with a surplus of capital they can then invest in their business. The key word here is “invest.”

There is no difference between an person or business taking a surplus of wealth and in effect, removing it from their possession for a long time, for the promise of some worthy return on that investment later. E.g., we take our surplus of money and invest it in a bank account for some promised interest rate.

In the context of a business, often a business buys an inventory of goods, i.e. creates a stock of goods, they can warehouse, so it will be available in quantity to facilitate rapid exchanges. E.g., if we are selling cars, we may stock 12 cars at one time, without having any buyers lined up, so that we don’t have to expend time and effort to order the cars one at a time as each order is placed.

We do not believe that the car dealer has bought the 12 cars at a loss, or that he is losing because the cars are just sitting there in inventory for some time.

If a company did use a loss-leader, i.e., buying a good at one price, and offering it at a mark down, below its cost, they are doing so to purchase something else. They are using the loss leader as a kind of currency, and they are making a kind of investment. They are investing in building a market, i.e., they are providing incentive for potential buyers to congregate to their particular location for “voicing” potential goods for sales, and receiving offers for exchange.

They are subsidizing potential customers to take the risk of coming to “learn” a new market; subsidizing them for their potential loss, which would occur if the new business turns out to be just a bunch of hype, and/or does not live up to the hype, marketing, gossip, rumor etc.

The implicit question on the lips of potential customers is, “why should I drive all the way out to your new business, look around and learn something new? Why should I expend the time to figure out your particular angle or product offering? Why shouldn’t I just continue to use my current vendors? What’s in it for me?” The loss-leader or “Grand Opening Sale,” is a means of investing in a new market.

A “market” as such, may be an abstract object, but it is a product, which has to be built, and for which can command a price. Some markets are better than others. Wal-Mart, invests in the market with their loss-leader, sending an economic message to potential customers, that if they frequent their market, Wal-Mart will be commit to providing good deals.

A loss leader is the price of getting potential customers to expend the effort of not only driving to the new market, but of learning the nature of the new market and its conventions, layout, quality, etc.

The loss-leader is like a “retainer” or a “good faith payment” in the case of using a real-estate agent.

I highly recommend Harry Binswanger's recently published course, "Philosophic Issues in Economics", which clarifies many of the principles needed to understand modern economics.

http://www.aynrandbookstore2.com/prodinfo.asp?number=DB76M

Regards,

Michael

Great arguments!

[Zip]

I saw Wal Mart move into a small city (Pembroke Ontario) near where I used to live. Wal Mart had been trying to open a store in the city for years and the "established business's" used this same argument over and over with the town council to stall Wal Mart's expansion. And they did, as I said for years.

Meanwhile the service, selection and prices in Pembroke as provided by the established Mom & Pop stores absolutely sucked. So what did a large portion of the population do? Well they drove either 30 minutes to the small Wal Mart in another small city down the highway, or 1.5 hrs to the big Wal Mart in Ottawa.

When Wal Mart finally did open the competition spurred the established business' to improve their prices, their service and in some cases specialize to provide what Wal Mart didn't because the market share didn't warrant shelf space.

Sure some of the old business' went out of business but I don't recall anyone lamenting them... Even the employee's found new jobs in retail with Wal Mart because they already had experience.

I talked about service above, I'll relate a story...

I went to a local glass shop in that city to get new glass doors for a wall unit, the old ones had been damaged by movers. So I brought in one of the old ones that was mostly intact so the shop could see what I needed and make a template.

Three weeks later I go to the shop pick up the doors and take them home. When I open the packaging up and try to fit the doors on the holes cut for the European style hinges are in the wrong places and the edge of the glass door instead of being beveled and sanded in a smooth continuous curve looks like someone took a hand held sander to it and made several clumsy attempts to take the edge off. There were still spots where the glass was sharp enough to cut. Hell they weren't even square!

Not impressed I take the doors back to the glass shop. I lay them out on the table at the front and start pointing out the flaws in their work. The man behind the counter (about 45 years old) looks bored as I explain what I want for the second time then looks past me to the next guy in line and says something to the effect of "Well George he's not going to get better work done around here is he..."

I couldn't believe it, I was absolutely enraged. This attitude was the result of this guy being the only game in town as far as this work was concerned. Now Wal Mart isn't in the manufacturing business, but that same attitude was prevalent in a lot of the small business' in the area... "Where else are you going to go?"

[Steve D'Ippolito]

Without assuming the claims in the quote are true, and arguing for free markets, I would point out the following elements of this quote:

The term "artificial" here is dubious. What do we contrast the term "artificial" with, in relation to prices? What is a non-artificial price? All prices are artificial, i.e., man-made.

One nit: it's *quite* artificial if the government did something to deliberately raise or lower the price (a subsidy or a targeted tax, e.g., the huge taxes on cigarettes). Or the price has gone up due to the deliberate effects of regulation (as in the all-too-successful attempts by viros to restrict the oil supply). (Mind you *all* taxation, government subsity and regulation is pernicious; I am focusing here on the ones specifically intended to affect prices in order to alter consumer behavior.

[TuringAI]

I'd appreciate it if someone here could respond to the following criticism of Wal-Mart. Is there a logical fallacy in this argument, or will big corporations such as Wal-Mart profit from employing such tactics? I think I read something about this in "Capitalism: The Unknown Ideal", but can't recall what it was.

Well, the thing here is not to criticize WalMart for finding a way to exploit people, but to encourage the mom&pop operations to make an agreement with the others to offer some sort of guarantee to their customers to not raise their prices. Say they all work together to register a trademark and to use that trademark to offer guarantees that they will not engage in business the same way as their opponents, and to run ads and the like. They have any right to organize with other businesses, and if the government stops them, they have any right to campaign for the guy who's not in office.

Also, when I say they have any right to campaign for the other guy, what I mean is you have any right to vote for the people who are committed to protecting your rights as long as the ones they are fighting against are committed to opposing your rights. A grower of cannabis and hemp would be right to vote Democrat so long as it is done to protect their rights and if the Republicans supported elimination of growing cannabis/hemp, even if the Republicans are for a lot of other freedoms that the Democrats are against. There's nothing wrong with voting for the party that would defend your freedoms in general more than the opposing party would, even if doing so takes away other people's freedoms, so long as your REASON for voting them is selfish and if you fight for freedom across-the-board regardless of party and are willing to criticize the party you voted for heavily for every right they took away from others.

[RussK]

I saw Wal Mart move into a small city (Pembroke Ontario) near where I used to live. Wal Mart had been trying to open a store in the city for years and the "established business's" used this same argument over and over with the town council to stall Wal Mart's expansion. And they did, as I said for years.

Yeah, they know that they're more expensive than what Wal-Mart is going to offer, so they try their hardest to keep them out of town. For most 'mom & pop' stores, depending on the type (what's sold), it's going to be hard to stay in business and compete with franchises like Wal-Mart, that have global distribution capabilities, but that's just an evolution of the business. Why is Wal-Mart the one targeted so much? Franchised grocery stores have been putting local grocery stores out of business since before Wal-Mart was even created. In this respect, why is Wal-Mart different from the other franchises that move to town: Target, Best Buy, Food World, Food Lion, Publix, etc...?

Edited May 10, 2009 by RussK

[SD26]

Why is Wal-Mart the one targeted so much? Franchised grocery stores have been putting local grocery stores out of business since before Wal-Mart was even created. In this respect, why is Wal-Mart different from the other franchises that move to town: Target, Best Buy, Food World, Food Lion, Publix, etc...?

That's a good question.

I can't say for sure that I have an answer, but is it because some other larger stores are unionized? They work with the collective programs, so they are "protected"?

Locally, we have been lucky to have a Super WalMart built in the area. It replaced a regular Walmart. I have heard the story that Walmart has "artificially low prices for a period of time" thing before myself. However, after years of having the store here, the prices are still here.

Example. Yesterday, I needed to get something, and I decided to go to the other local franchised grocery store, I'm looking for the "old school" sugar rather than corn sweetened Pepsi, and I wander past the bacon area. This store had this particular bacon on sale for $7 for two 16oz packages. At Walmart on Friday, the exact same brand and size was available at a regular price of $2.98. As a free consumer, I like choices.

[Steve D'Ippolito]

Once I started shopping for groceries at Walmart, it became even more painful for me to shop the unionized stores--especially the ones with the saver card programs, which seem to be the most expensive of the bunch.

[RussK]

I found this list of unionized grocery stores. Only one of the stores on the list operates near where I currently live; the last place I lived (FL) there were no grocery stores that were on that list, that I saw or remember anyway. I did live in Ohio for about a year, and Kroger was generally the most popular place to get groceries--they were also some of the most rundown stores I had ever seen.

[SD26]

I found this list of unionized grocery stores.

Thanks for the link. The one I was using in my recent comparison was a Roundy's based store. It is unionized.

[Chris.S]

I couldn't believe it, I was absolutely enraged. This attitude was the result of this guy being the only game in town as far as this work was concerned. Now Wal Mart isn't in the manufacturing business, but that same attitude was prevalent in a lot of the small business' in the area... "Where else are you going to go?"

The Wal-Mart in Pembroke actually serves everyone up to about an hour past Deep River, which is great for everybody. But that whole attitude in your last example is prevalent in the whole Ottawa Valley, not just Pembroke or Petawawa - even with haircuts!

[Zip]

The Wal-Mart in Pembroke actually serves everyone up to about an hour past Deep River, which is great for everybody. But that whole attitude in your last example is prevalent in the whole Ottawa Valley, not just Pembroke or Petawawa - even with haircuts!

LOL, so you've been to the Valley...

I was so glad when I returned to Ottawa.

You military Chris?

[Chris.S]

LOL, so you've been to the Valley...

I was so glad when I returned to Ottawa.

You military Chris?

My dad was, then my mom. She's been based in Petawawa for way too long now (12 years). My brother and I basically grew up there from ages 9-18 (most of that in Chalk River/Deep River), so we consider ourselves Valley Boys, but I live in Toronto now for work and school. Not many office tower to build in the Valley