Tuesday, June 8, 2010
The Usual Suspects
Doug and I have discussed below the question of when do we (either as economists or as non-economists interested in policy issues) "know" something based upon economic research. One finding that I have observed to be robust in several different economic analyses is that Wal-Mart provides consumers with lower prices, especially to lower income shoppers. A nicely done example of such research can be found here.* Not surprisingly, the range of estimations of the price effect varies somewhat; numbers that I recall fall into the 3% - 10% range.
Let's suppose we remained unconvinced of the validity of the proposition that Wal-Mart stores lead to lower prices, and wanted to find evidence outside the realm of the statistical analysis of applied econometrics. If Wal-Mart stores drive down customer prices, then an obvious category of "losers" from the arrival of a Wal-Mart would be the region's existing retailers. Evidence that existing retailers expended resources to block the arrival of a Wal-Mart would be independent evidence of a) existing retailers' expectations that they will be hurt by Wal-Mart, and b) ongoing oligopoly rents by the existing retailers; otherwise they would not be able to divert resources to a rent-seeking activity such as blocking rivals. The latter statement is separately interesting from the first, because if the existing firms are earning zero-economic profits given their technological possibilities, they are more likely to exit the market with a significant entry by Wal-Mart. On the other hand, if the existing firms are earning monopoly or oligopoly rents, then they may survive after a Wal-Mart entry, but with lower prices and profits. Some evidence on this is discussed in the Basker paper I linked above.
Now comes the news section (as opposed to the editorial pages) of the Wall Street Journal, yesterday, in a Page 1 story "Rival Chains Secretly Fund Opposition to Wal-Mart," by Ann Zimmerman (I won't link to the story because WSJ articles disappear after a few days). Reporter Zimmerman profiles the Saint Consulting Group, whose founder calls his staff "Wal-Mart killers." Saint is often active in assisting "local" political attempts [land use fights are very common] to block entry by Wal-Mart. Zimmerman reveals two points: the most important being that these anti-Wal-Mart campaigns are often paid for by ... (drum-roll please) the existing retailers who don't want Wal-Mart as a competitor. Zimmerman details funding by Safeway, Giant Foods, and Supervalu (Jewel-Osco). For example "Supervalu's objective was to block Wal-Mart from competing with its nine Jewel-Osco supermarkets located within three to ten miles of the proposed [Wal-Mart] shopping center."
(A second revelation was that much of the activity promoted by these anti-Wal-Mart protests is "astro-turfing" : outside consultants using phony names and false rumors. I won't spend a lot of time on this aspect of the article because to paraphrase Captain Renault in Casablanca, "I am shocked, shocked to find that some of the rumors about Wal-Mart are not correct.")
So we have direct evidence that confirms the statistical econometrics results. Existing grocery firms who are already capturing some kind of supra-competitive economic profits can and do divert some of those profits to political campaigns to block a competitor which threatens to compete away those profits.
I am constantly amazed by the hostility towards Wal-Mart by people whose political and/or religious convictions are to "help the poor" when there is so-much evidence that Wal-Mart's lower prices do just that. (Disclosure, I have lived in a small Oklahoma town that I heard later obtained a Wal-Mart, so I know something about the kinds of towns that made Sam Walton both rich and famous). I sometimes think that perhaps anti-Wal-Mart sentiment represents an instinct to attack the rich, even if that means hurting the poor. There are two problems with having such a philosophy. First, that bias would seem to me to be a type of injustice that is itself forbidden by Scriptures. Secondly, who believes that Safeway, Giant Foods (owned by a Dutch firm), or Jewel-Osco represent poor "local" retailers?