Wal-Mart, their market power in the U.S. and whether or not they should be allowed to use banking services that were once restricted to banks.
Wal-Mart is one of the largest companies in the globe. Zellner, of the Bloomberg Business Week Magazine, writes that “in business, there is big, and there is Wal-Mart. With $245 billion in revenue in 2002, Wal-Mart Stores (WMT) Inc. is the world’s largest company” (Zellner, 2003, p.1). Sowell, of the Capitalism Magazine, explains that “much is made of the fact that Wal-Mart has 3,000 stores in the United States and is planning to add 1000 more”(Sowell, 2003, p.2). Wal-Mart has highly criticized by the business world for trying to monopolize the American consumer market. Some of the arguments that have been put forth include the fact that Wal-Mart kills small business due to the competition that it poses and the advantages of the economies of scale that the company enjoys compared to other small business. Wal-Mart has also been criticized by the banking sector due to the fact that the company has been to extend banking services to their customers causing many banks to run out of business. This paper takes the position that Wal-Mart does not have too much market power and should be allowed to extend banking services to its customers.
First of all, it is important to note that the aim of any business enterprise is to make profit. Therefore, all market choices that the Wal-Mart managerial team makes it terms of its operations are meant to maximize this profit. However, some economists argue that the business market should be regulated so that the government can have a hand in improving the market outcome. More government regulations on the market mean that enterprises make fewer profits because the regulations that are set forth by the government increase the cost of production. On the contrary other economist argues that the business market should be free of government intervention so that the “invisible hand of economics” can be given the opportunity to regulate the market based on the market income. Though the US government seems to combine the two economic principles, it is apparent that the government has allowed large companies like Wal-Mart to continue their operations without regulating their effect on other competitors in the market. Wal-Mart has taken advantage of this so as to monopolize the market. For instance, writes Sowell “Wal-Mart sells about 30 percent of all the disposable diapers in the country and is amassing even more market power.”(Sowell, 2003, p. 2). This is a clear indication of the level of control that Wal-Mart as a company has on the US economy. However, it’s important to note that this market power is not a disadvantage to the US consumer base. This is because the institution is able to increase the availability of a particular good to virtually all customers in the United States by opening multiple stores across the country.
In addition, Wal-Mart’s market power allows the company to create a customer service section where customers can return goods in case they are not satisfied with the quality of the products that they purchase. The availability of this service allows customers to build more trust with the company because their interests are adequately met. Therefore the monopolizing power that Wal-Mart has is an advantage to the US consumer base because they can obtain goods from the same institution all over the United States and can also be in a position to return the good in case they are not satisfied with it. This means that the critics that are placed on Wal-Mart based on the fact that it monopolizes the market is based on the fact that other businesses are unable to favorably compete with the company due to its size, the number of stores it has across the United States, and the quality of customer service that Wal-Mart offers its customers.Sowell continues to write that “the people who shop at Wal-Mart can decide whether that is good for them or notcritics are only worried about something they call ‘Wal-Mart’s Market Power”(Sowell, 2003, p.2). This means that the question of whether Wal-Mart has too much market power should be left entirely in the hands of the consumers and not the business community. This is because the aim of the business community is also to be in a position to monopolize the US market just as Wal-Mart has been successful in doing.
Second, Wal-Mart has been criticized for the low prices that it offers to its customers for various goods. Zellner writes that “At Wal-Mart, “everyday low prices” is more than a slogan; it is the fundamental tenet of a cult masquerading as a company. Over the years, Wal-Mart has relentlessly wrung tens of billions of dollars in cost efficiencies out of the retail supply chain, passing the larger part of the savings along to shoppers as bargain prices. New England Consulting estimates that Wal-Mart saved its US customers $ 20 billion in 2002” (Zellner, 2003, p.1). This means that the low prices that Wal-Mart sells its products allows customers to save more money especially during hard economic times. This is because customers who continuously shop at Wal-Mart are able to save money over a long time that would have been used to purchase the same goods from other retail shops. Zellner explains that “It’s no wonder that economists refer to a broad “Wal-Mart effect” that has suppressed inflation and rippled productivity gains through the economy year after year”(Zellner, 2003 , p.1). This is a clear indication that due to the large financial base that Wal-Mart enjoys the company is able to put its prices low so that customers cannot be affected by inflation which is often the reaction of the market in case of an economic down turn. In addition the ability of Wal-Mart to keep its prices low forces other competitors in the market to also keep their prices low because if they hike their prices, more customers will shift to Wal-Mart to evade the high prices.
Third Wal-Mart has widened its scope of customer services such that instead of only offering retail services the company has also ventured into the banking sector. This move by Wal-Mart has been viewed by business competitors as one that extends the level of competition from retail companies to banks. Roane, of CNN Money, writes that as the American economy continues to face challenges”America’s biggest banks are in retreat, tightening lending, increasing fees, and closing branches. But one company still wants to become your neighbor: Wal-Mart” (Roane, 2010, p.1). This means that as banks begin to increase their charges on their clients so as to meet the deficit that is created by the declining economy, Wal-Mart remains untouched. This is because the institution has a strong financial base that allows the institution to charge lower fees for the same services that are delivered by banks. Roane explains that “Wal-Mart has aggressively courted customers’ pocket books, partnering with financial services companies to offer money transfers, check cashing and bill payments, and putting virtual checking accounts, refillable pre-paid debit cards-in the hands of more than two million customers”(Roane, 2010, p.2). This means that Wal-Mart has not only ventured into the banking sector to give the same services that were initially given by banks but it has also provided better banking options for its customers such that there are no requirements like identification and other requirements that are required by banking before opening a simple savings or checking account. One can easily obtain a pre-paid debit card to conduct transactions. The low prices offered by Wal-Mart on banking services has increased the number of customers who are closing their bank accounts and opting to use the services provided by Wal-Mart. Speaking to the New York Times, Write Martin and Clifford, “Mr. Cardone a customer at Wal-Mart said that the banking services at Wal-Mart are cheaper because the company offers a flat rate for its banking charges. This is unlike other check-cashing stores that keep a percentage of the check, which tends to be higher (Martin & Clifford, 2011, p. 1).
In conclusion, the increasing number of customers that are using Wal-Mart banking services, “have increased the eventual likelihood of a Wal-Mart Bank” (Roane, 2010, p.1).Wal-Mart should be allowed to continue offering bank services and open a Wal-Mart bank. This is because the company saves its customers extra fees that would be incurred if they conducted their banking transaction in banks. In addition, Wal-Mart provides alternative banking options like the use of Pre-paid debit cards which are not available in some banking institutions.
Martin, A., & Clifford, S. (2011, November 7). High Bank Fees Give Wal-Mart a Money Aisle. New York Times. Retrieved from http://www.nytimes.com/2011/11/08/business/wal-mart-benefits-from-anger-over-banking-fees.html?pagewanted=all
Roane, K. R. (2010, June 24). One more worry for banks: Wal-Mart. CNN Money. Retrieved from http://money.cnn.com/2010/06/22/news/companies/walmart_banking_services.fortune/index.htm
Sowell, T. (2003, December 9). Is Wal-Mart Good for America? Capitalism Magazine. Retrieved from http://capitalismmagazine.com/2003/12/is-wal-mart-good-for-america/
Zellner, W. (2003, October 5). Is Wal-Mart too powerful? Bloomberg Business Week. Retrieved from http://www.businessweek.com/stories/2003-10-05/is-wal-mart-too-powerful