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Wall Mart as a Monopoly in a Trading Network

http://www.fastcompany.com/magazine/77/walmart.html?page=0%2C1

Wall Mart as a Monopoly in a Trading Network

Wal-Mart is known for the incredibly low prices that it gives to its customers. After all, its slogan is “Every Day Low Prices.” It is praised by many consumers for this, but most people do not realize that this powerhouse for cheap goods is actually a monopoly as seen through its actions as a trader between suppliers and consumers.

First, it is helpful to look at its role in society before placing it in a network. Wal-Mart is not just the world’s largest retailer, but it is also the world’s largest company, bigger than General Motors, General Electric, and ExxonMobil. Because of its ultimate power, it therefore has complete control over the market for cheap retail goods, selling in three months what it takes the second highest retailer to sell in a year. Moreover, it is also in broader terms a middle- man between the suppliers of goods, and buyers. Thus this trading network that applies to monopolies arises.

Now, a typical monopoly trading network consists of the trader in the middle, who is the monopoly, he the trader bids $0 to the seller, and sells the good for $1 to buyers, who value the good at that amount. As a result of these two transactions, the trader makes a profit of 1, paying nothing for the good and getting however much it is worth to the buyer.

This greatly correlates with how Wal-Mart conducts business. For Wal-Mart to have these “every day low prices,” where these customers are only willing to purchase goods at the Wal-Mart price, this company has to squeeze out everything they can from their suppliers (or sellers). Wal-Mart has 21,000 suppliers, and all of them need to survive in a society where consumers demand lower and lower prices. Therefore to keep their business with Wal-Mart, these suppliers will do anything from laying off workers, to outsourcing to plants outside of the United States in order to be able to afford to cut their prices. These sellers do not have a choice, but have to take that bid price of 0 from the monopoly.

This squeeze on the seller is all done for the buyer, or consumer, side of the network. Wal-Mart customers continually benefit from these low prices. It is therefore evident that Wal-Mart has its customer base because these consumers demand low prices, and Wal-Mart gives it to them. This fact correlates with the monopoly trading network, where buyers value their goods at 1, and the trader gives it to them at that value. And in the end, Wal-Mart makes a profit, even with selling at their well known low prices. In the network this is shown where the bid price is 0 and the ask is 1, thus the profit is 1. This is how Wal-Mart is able to be the largest company in the world, making profits no other can imagine. They squeeze the sellers so they can buy goods for very cheap prices, and sell their goods to countless consumers for the prices they desire, continually making a profit from every small transaction.

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