Tuesday, September 18, 2007

Blessed Are The Monopolists? II

The following are some conclusions drawn by Prof. Emek Basker in his new Journal of Economic Perspectives article "The Causes and Consequences of Wal-Mart's Growth".

Wal-Mart's productivity advantage is due to "its large and early investment in information technology."

"Wal-Mart's biggest and most obvious effect is that it provides lower prices to consumers. The competitive effect of Wal-Mart has lowered prices that consumers pay even when they do not shop at Wal-Mart; but this pressure also reduces the profitability of other stores and in some cases causes stores, especially small ones, to shut down....Wal-Mart's effect on jobs is likely to be modest and is likely to be positive, but its effect on wages requires further investigation."

There are a couple of other points worth noting in Prof. Basker's article. One area of economic dislocation has been in the area of small, domestic suppliers who can not meet Wal-Mart's requirements for information technology. And, quite interestingly, he quotes another study by Prof. Panle Jia as stating the the economic effects of Wal-Mart are very similar to those of K-Mart. So why does Wal-Mart generate such negative reaction from our cultural elites compared to other discount retailers? Of course, Wal-Mart's roots are in Arkansas compared to Minnesota (Target), California and Washington State (Costco), and Michigan and Illinois (K-Mart and and the former Sears). In a map provided by Prof. Basker, it appears that as recently as 1989 Wal-Mart was completely unrepresented in the DC-Boston and San-Diego to Seattle corridors. And, according to Prof. Basker, Wal-Mart shoppers have obviously lower average incomes than the customers of the two rivals he reports (Target and Costco). Hmm. I wonder. WWJHO? (Where would Jesus hang out?) We report. You decide.

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