for Econ: Are suppliers forced to sell to Wal-Mart?

[pointrider]

Econ, can you give me the name of one company that is forced to sell to Wal-Mart against their will?

 

[Econ101]

I have no idea. I do know a lot that have been run out of business because of the abuse of market power by Walmart and have posted some of those instances on this forum.

Goods coming from China that are subsidized by a pegged yuan hurt all domestic producers just as subsidizing of foreign agricultural goods that are dumped on the world market hurt domestic producers when Walmart buys them and sells them in lieu of domestic products at their stores.

Is this just too hard for you to understand, pointrider?

Society benefits from having lower costing products, sure, but the domestic production that is lost is not counted. Several months ago there was an article in the WSJ where a few such industries moved to China and then the Chinese companies that had gained those industries were colluding to bring the price up. Since they had run the domestic production in the U.S. out of business, there was no competition to speak of within the U.S.

These are short sighted policies that seem beneficial in the short run. In the long run, we pay the price. The same is true on the concentration of industries where true competition takes a backseat to collusive behavior.

Pointrider, did you take any economic classes on some of these issues? You might want to brush up on your microeconomics.

Supression of the producer surplus through the abuse of market power will result in deadweight losses to the economy. The courts (at least the 11th circuit) seem to have winked at this in the Pickett case.

Decisions such as these will lower our long term economic growth for short term gain.

 

[pointrider]

Thank you Econ for being patient with me. I have never claimed to be the smartest person in the world.

Now, once again I will try to find out where you believe that Wal-Mart has abused market power.

You stated, "I have no idea. I do know a lot that have been run out of business because of the abuse of market power by Walmart and have posted some of those instances on this forum."

Okay, I will review your posts to see who those companies are, but that still does not tell us if there is someone out that selling to them against their will. I don't believe there is such a company, but I could be wrong. As far as the others go, is Wal-Mart obligated to keep anyone in business except themselves? Is that where the market power abuse occured? When they started buying from a Chinese company instead of their current supplier? What about other companies who buy from China? Are they also abusing market power? Please help me understand where the abuse occured. I have asked before, and I am asking again.

Is it Wal-Mart's fault that China is pegging the yuan? The U.S. government and other governments have not been very successful at convincing China to change their ways. Is Wal-Mart more influential than the U.S. government? If they are, then maybe we could show Wal-Mart how convincing China to change their ways would be in their best interest.

I would spend more time on economic theories if I thought it would help producers more than other activities within, let's say, the next 10 years - or approximately the next cattle cycle. But I don't believe it would. Producers need to be concerned about the issues you put forward, but their number one priority needs to be to get in the Top Third if they are not there so they can make some money and survive. Otherwise, it's kinda a moot point, right? What good is global microeconomics to the thousands of producers who will exit the business in the next 10 years?

 

[Jason]

Just a side point on pegging currency. It has no effect on trade because the same point is used to buy the raw commodity as is used to sell the finished product. The same thing can be accomplished by hedging your currency when dealing in a foreign market.

When China buys oil, glycol, or other commodities from the West, they use the same value as they do when they sell back the textiles, toys and all other items they sell.

 

[Econ101]

Pointrider, you know I totally support you in the role of bettering producers. What I want to make sure is that when they do get better, that they get paid for it. Market power often thwarts any gains that are made because these gains can be taken by those with market power, not the producers.

Your goals and mine are not at odds with each other. They are complementary.

Pointrider: Is it Wal-Mart's fault that China is pegging the yuan? The U.S. government and other governments have not been very successful at convincing China to change their ways. Is Wal-Mart more influential than the U.S. government?

Econ: No, this is the fault of our trade negotiators and the politicians at the time that have allowed sorry trade deals for their own self interest, and not the interests of the country. The trade issues that we are talking about were known by our founding fathers (the U.S. earned goods from overseas through trade) and that is why they put the power of trade deals in the hands of the part of the government closest to the people---the House of Representatives. The House has delegated much of the arguments to the executive branch in fast trade negotiations and the some of the interests in the country are not argued over and discussed.

I did a bit of work on trade, trade theory, and currency fluctuations and their effects on trade when an undergraduate so I read up on Ricardo, Adam Smith, and others. Much of this stuff is being misquoted by people like Agman to regular people with less knowledge. I don't fault regular people, unless they start going into dumb arguments that don't make sense like SH, or MRJ. If you will notice, Agman will not respond to the real critiques of his interpretation of Ricardo or Smith. It is because he can not refute the points.

Few people can claim to be the smartest (I certainly don't) but we must all strive to be in the top 1/3 and not let policy be made by the bottom 1/3.

 

[ocm]

Econ, can you give me the name of one company that is forced to sell to Wal-Mart against their will?

Have you heard the Vlasic story? Vlasic sold pickles (and a lot of other stuff) to Sam's and Wal-Mart. They normally ran on annual contracts. One time during the renegotiation process the Sam's/Wal-Mart buyer discovered that Vlasic made dill pickles in a gallon jar. He proposed a contract for purchase of gallon jars of pickles. Vlasic agreed to sell them the gallon jars of pickles. The contract had a set price but no mazimum quantity. The margin for Vlasic was lower on the gallons than on the other sizes. Sam's used the pickles as a loss leader. People bought the gallons in large quantities. They were almost as cheap as the quarts. So Sam's bought fewer quarts from Vlasic and Vlasic's overall margin went down.

After a year, when it was time to renegotiate supply contracts, Vlasic asked for a price increase on the gallons of $.05. Sam's said they wanted a price decrease of $.05. Vlasic bristled. Sam's said, "If you won't sell us your gallons for $.05 less then we won't buy anything from you." Sam's/Wal-Mart was such a large percentage of Vlasics business that they could not afford to lose them as a customer. They relented. Margins continued to drop and Vlasic ended up in Chapter 11.


A similar thing happened with Rubbermaid. The difference was that Wal-Mart wanted Rubbermaid to lower the quality in order to lower the price. Rubbermaid refused. Wal-Mart cut them off completely. Rubbermaid went into Chapter 11. They were bought out by someone else. The new owner lowered the quality of the product and now sells to Wal-Mart.

Market Power. The Big Gorilla has the power to set quality and price and present an ultimatum and get it one way or another.

There are better free market alternative than this.

 

[the chief]

Pointrider, I don't believe anyone is FORCED to sell against their will to Walmart. BUT, you ARE forced to take their price. Take it or leave it is an abuse of power in a free trade system, isn't it?

Either take their bid (no matter how close to your cost of production) or NOT sell your product at Walmart.

Kind of like when we sold cattle to the old IBP. "Here's the bid we offer. You have 15 minutes to decide. If you ask another buyer for a bid, OUR offer is OFF the table."

And yes, that happened. MANY TIMES.

 

[Jason]

Average cost of production for calves is $350 I offer all ranchers $355 for weaned heifers take it or leave it.

Only those that accept this in 30 minutes will be paid.

 

[ocm]

Average cost of production for calves is $350 I offer all ranchers $355 for weaned heifers take it or leave it.

Only those that accept this in 30 minutes will be paid.

Not a comparable situation. Fat cattle are "perishable" and must be marketed on a tighter schedule. Also your suppliers have MANY other choices besides you. Or in fact they can decide to keep them, a choice not available to feeders.

 

[Econ101]

Pointrider, I don't believe anyone is FORCED to sell against their will to Walmart. BUT, you ARE forced to take their price. Take it or leave it is an abuse of power in a free trade system, isn't it?

Either take their bid (no matter how close to your cost of production) or NOT sell your product at Walmart.

Kind of like when we sold cattle to the old IBP. "Here's the bid we offer. You have 15 minutes to decide. If you ask another buyer for a bid, OUR offer is OFF the table."

And yes, that happened. MANY TIMES.

This is what I call the elasticity effect of excess profits.

When a shopper is in a store and picking up thier groceries, they usually like to to go just that one store. Lets face it, we are all busy and working hard. Shopping is just not what it used to be where housewives had the luxury of shopping several different stores to get the best valus.

This is the idea behind loss leaders in marketing. The store will advertise an item that is a "loss leader" where the store may actually lose money on that particular product but it brings customers into the store and they make up the difference on the other items they purchase.

A thanksgiving turkey is a perfect example. A store will run an ad on cheap turkeys that they may lose money on. They make the lost money up on the other items (complementary products) in the store that the customer picks up like cokes or rolls or stuffing or whatever. The items may be cheaper in another store but because the shopper will have to expend more time and energy and maybe leave icecream that they bought on sale also, they will just do all their shopping at the one store.

The decision to go to the one store was made before the trip (if the advertising was working) with incomplete information on the cost of all the items as a group as compared to a competitor's store.

In this way the retailer was able to sell more items at a higher price and make up the loss on the turkey due to the higher elasticity (elasticity just means that as the price goes up, the amount bought does not go down the same amount).

When the buyer offers only 15 minutes to make a decision on the purchase, they are creating an artificial elasticity effect on excess profits on the ability to even sell the perishable product. The seller must make a decision right away or the transaction costs of getting a new buyer (just as the higher priced complimentary items in the turkey example) may make the competition irrelevant or even costly.

In this scenario, where is there a chance for the selller to ascertain what another buyer will offer and get some real competition for his product?

This type of buying system hinders the best price for sellers.

 

[Jason]

Average cost of production for calves is $350 I offer all ranchers $355 for weaned heifers take it or leave it.

Only those that accept this in 30 minutes will be paid.

Not a comparable situation. Fat cattle are "perishable" and must be marketed on a tighter schedule. Also your suppliers have MANY other choices besides you. Or in fact they can decide to keep them, a choice not available to feeders.

Fat steers are exactly the same. If a packer offers a price and wants an immediate answer, you better have done your homework and know what you need for your fats.

Any feedlot that just calls out of the blue when their steers are so fat they need to move this week isn't paying attention.

Most lots have moved to a sealed bid system. They place the time limit on the packers buying and don't play games. If the packers know a good set of fats is coming up, they better be prepared to pay the most or they won't get them bought.

The information is there everyone knows(or has the ability to know) what fats are trading for. The information of the futures board was used when the calves were placed so the fat price was even known then.

Business with Wal-mart is similar. If a business doesn't know their cost of production, they don't know when to say no to an offer. Wal-mart isn't the only store that will buy pickles or rubbermaid containers. Companies dealing with Wal-mart better know their business, their competitiors, and all their costs going in.

The Vlasic example if correct, that they sold their gallon size pickles for nearly the same cost as quarts is a prime example. That deal should never have been available if Vlasic couldn't make money on it. Any buyer in any business will look for the best deal. If I can buy calf vaccine in larger bottles for the same price as a small one, I will, only an idiot wouldn't.

 

[Econ101]

Average cost of production for calves is $350 I offer all ranchers $355 for weaned heifers take it or leave it.

Only those that accept this in 30 minutes will be paid.

Not a comparable situation. Fat cattle are "perishable" and must be marketed on a tighter schedule. Also your suppliers have MANY other choices besides you. Or in fact they can decide to keep them, a choice not available to feeders.

Fat steers are exactly the same. If a packer offers a price and wants an immediate answer, you better have done your homework and know what you need for your fats.

Any feedlot that just calls out of the blue when their steers are so fat they need to move this week isn't paying attention.

Most lots have moved to a sealed bid system. They place the time limit on the packers buying and don't play games. If the packers know a good set of fats is coming up, they better be prepared to pay the most or they won't get them bought.

The information is there everyone knows(or has the ability to know) what fats are trading for. The information of the futures board was used when the calves were placed so the fat price was even known then.

Business with Wal-mart is similar. If a business doesn't know their cost of production, they don't know when to say no to an offer. Wal-mart isn't the only store that will buy pickles or rubbermaid containers. Companies dealing with Wal-mart better know their business, their competitiors, and all their costs going in.

The Vlasic example if correct, that they sold their gallon size pickles for nearly the same cost as quarts is a prime example. That deal should never have been available if Vlasic couldn't make money on it. Any buyer in any business will look for the best deal. If I can buy calf vaccine in larger bottles for the same price as a small one, I will, only an idiot wouldn't.

Jason, it would be nice if you knew what you were talking about.

Sellers don't get what they have in costs for their products, they get what the market offers. If there is no competition for their products, they will just get less with the exercise of market power.

 

[Jason]

Sellers don't get what they have in costs for their products, they get what the market offers. If there is no competition for their products, they will just get less with the exercise of market power.

If that were always true there would be no sellers left in the world.

No business can continually sell for less than cost of production.

Feedlots that sell at a loss 3 times usually are out of business. They are managed in a way that they can sustain 2 losses in a row but need a profit on the third go.

Canadian feedlots took their second major hit right at the start of BSE, but they continued in business because they bought replacements cheaper and turned a profit on the next go.

If a feedlot buys calves at a price they know they will lose money on 3 times in a row, they don't deserve to be in business.

There is no business in the world that garantees a profit despite poor management.

 

[Econ101]

Sellers don't get what they have in costs for their products, they get what the market offers. If there is no competition for their products, they will just get less with the exercise of market power.

If that were always true there would be no sellers left in the world.

No business can continually sell for less than cost of production.

Feedlots that sell at a loss 3 times usually are out of business. They are managed in a way that they can sustain 2 losses in a row but need a profit on the third go.

Canadian feedlots took their second major hit right at the start of BSE, but they continued in business because they bought replacements cheaper and turned a profit on the next go.

If a feedlot buys calves at a price they know they will lose money on 3 times in a row, they don't deserve to be in business.

There is no business in the world that garantees a profit despite poor management.

Valisic pickles has been bankrupted.


Jason, what would happen if Canada did not have the U.S. for a market?

You say that no business in the world is guarentees a profit despite poor management. What about illegal management? The court system in the 11th circuit must not agree with you. Despite a court verdict that was not repudiated adequately, they substituted their communist opinion of taking the producer surplus and giving it to consumers.

 

[Mike]

can you give me the name of one company that is forced to sell to Wal-Mart against their will?

No one is forced to sell to Wal-Mart the first time. It is somehow the dream of a start-up company to sell to them though.

By the grace of God I was warned about them by a company that was once my competitor, but started selling to Wal-Mart and was totally bankrupt within 2 years of their first sale to Wal-Mart.

It works like this. Wal-Mart approaches a small company and becomes a buyer after a price is negotiated that is absolute rock bottom. After a short period of time that small company only has one customer because the product is flying out the door and Wal-Mart is demanding better prices and more product.

Wal-Mart then comes back to this small company grown larger through loans and such to increase output. Wal-Mart has found another vendor for their product at a cheaper price. What do they do? They drop their price because of loan payments, employees, etc. Soon they are bankrupt.

You may not blame Wal-Mart because after all, "it's just business", for finding a cheaper product.

Yes, I can name you a few companies that were forced to sell to Wal-Mart.

But the ones I know of are no longer in business.

 

[the chief]

Thank you, Mike, for sharing that info. I can't believe there are some people who are so wrapped up in their own little republican-minded world that they can't see corruption in the market place by corporations. And I am not saying ALL people with republican attitudes fit this mold, just those who have their heads so far up their conservative a$$e$ that they couldn't see the truth if it were given to them.

Being naive is no excuse for being ignorant to corporate greed and manipulation.

 

[Econ101]

Thank you, Mike, for sharing that info. I can't believe there are some people who are so wrapped up in their own little republican-minded world that they can't see corruption in the market place by corporations. And I am not saying ALL people with republican attitudes fit this mold, just those who have their heads so far up their conservative not nicee$ that they couldn't see the truth if it were given to them.

Being naive is no excuse for being ignorant to corporate greed and manipulation.

And being a republican should be no excuse for being complicit in corruption carried out or allowed by other republicans.

Those engaged and allowing corruption are not real republicans. They are just scamsters hiding behind a reputation and integrity that was built by their predecessors. It is a sellout of all the true republicans.

The same thing goes for democrats or any other party.

 

[L.E. Stevens]

It works like this. Wal-Mart approaches a small company and becomes a buyer after a price is negotiated that is absolute rock bottom. After a short period of time that small company only has one customer because the product is flying out the door and Wal-Mart is demanding better prices and more product.

Our company sells, or sold product, to Wal-mart. Although not our sole customer, this scenerio did play out a number of times. We met their requests thru various cost cutting efforts such as replacing certain components with off-shore items, large quantity purchasing, etc. However, it finally reached a point that we could not compete with a similair totally off-shore item & we were forced to no-quote on these items. We eventually laid-off a number of people due to the reduction in sales to Wal-mart.[/quote]

 

[Sandhusker]

I find it sadly ironic that folks support their tax monies being spent to bring in businesses and factories via tax breaks, land giveaways, etc.... because they recognize the benefits of the "bouncing dollar" on the economy, but then they shop at Walmart where most of their dollars bounce once - to China.

 

[Econ101]

I find it sadly ironic that folks support their tax monies being spent to bring in businesses and factories via tax breaks, land giveaways, etc.... because they recognize the benefits of the "bouncing dollar" on the economy, but then they shop at Walmart where most of their dollars bounce once - to China.

Under a real "free trade" approach, the Chinese would be earning those dollars and then taking them to the U.S. and elsewhere to spend. The problem is that the communist Chinese govt. is not allowing that money to go to a set of free people (partly through the communist control of currency manipulation of having the yuan pegged) that will spend the money back on U.S. goods to keep the "bounce" going for the benefit of both countries. Instead, the money is being used to buy the right to tax my kids and your kids wioth purchase of the national debt. It keeps the interest rate lower, yes, but the average person in the economy in the U.S. actually sees inflation adjusted earnings decline and you get things like housing bubbles. The discontent of politicians is because people see this in thier own lives with their own earning power. Only the really rich are getting richer.

Under this system, the past measures of progress like GNP and GDP do not apply. The average person works harder and earns less buying power. When 3 people have jobs and one is let go, the other two have to pick up the work of the one that left. They work harder and longer, and if they are on salary, they do not get extra compensation for the time they miss at home with their families or the value they bring with their time there. It is called a "productivity" increase but it is only productivity as measured by the corporations that are employing them, not the workers themselves. The corporations did have to spend money on salaries and benefits on 3 people but now only have to provide salaries and benefits for 2 people. They are more "productive" but it is a pareto efficiency where families bear the cost of the increased "productivity". It is unjust:

Pareto efficiency does not necessarily require a "just" or equitable distribution of wealth. An economy in which the wealthy hold the vast majority of resources may be Pareto efficient.

Unfortunately, the measures of our optimum economy are being used economically to justify the disapperance of the producer surplus and a concentration of wealth through market power. It is happening in a lot of industries but while the measures say we are doing "better" it is actually just a reallocation of resources to those who wealthy and own particular assets (including housing and hard asset bubbles, cowpuncher).

I think the fault lies not in the Gretchen Wilsons, but in the people that allow the producer surplus to be unjustly taken with market power and the trade deals that are negotiated.

Walmart's efficiency in retailing should not be an excuse for an abuse of market power and the depression of prices through the forced loss of the producer surplus (some mistakenly call this efficiencies of scale).

Walmart failed in Europe in part because those governments are more adept at enforcing the economic rules agains the use of market power on the market than our soldout (U.S.) current government.