Wal-Mart Speak, You Listen!

Over the past couple of weeks, I've talked about Wal-Mart's near-monopsony powers, and why the perfectly rational and understandable decisions of the company may not, in fact, be in the wider interests of the country. Today, in the Wall Street Journal, there's a concrete example of how their monopsony works:

Recently, for example, the major studios opened negotiations to provide movies to be played on Apple Computer Inc.'s video iPod -- an important step toward Hollywood's digital future. Then Wal-Mart, the biggest seller of DVDs, disrupted the talks when it delivered a pointed warning to the studios not to give Apple a better deal for digital movies than the retailer gets for physical copies.

That, of course, is ridiculous. A physical digital video disc must be produced, printed, labeled, packaged, shipped, affixed with bar codes and pricing information, and shrink-wrapped before selling. This must be done for every single copy. To demand that a download of the actual data -- which requires none of the production, packaging, or delivery costs -- should be priced similarly is nuts.

Yet Wal-Mart will likely get their way on this one. They account for more than a third of total DVD sales in the country. Without their cooperation, the movie studios are screwed. And so they'll raise the price on iTunes downloads to retain the retailer's favor.

I use this example not because Wal-Mart is doing anything wrong, and not because their behavior will have negative outcomes, but as an example of how powerful they are: Little is more illogical than pricing digital download precisely similar to physical discs. But faced with Wal-Mart's wrath, sellers have no choice. In that way, Wal-Mart is able to centrally plan portions of the economy, impacting economic decisions far outside the retailer's four walls, and deciding the behavior of other sellers and retailers. Imagine if, as Wal-Mart often does, they turned to one of the studios and said: "your DVDs are priced too high, and we've analyzed your labor practices and decided that they exhibit much potential for cost-cutting. If you don't cut them, you'll be dropped from our stores." Much as with the iTunes demand, the seller would have no choice. It's H. Lee Scott's way or the highway, and that road don't lead nowhere.

This is why the issues surrounding the retailer go far beyond how they pay their cashiers. Wal-Mart has the size, power, and will to dictate the behavior of their sellers, meaning their decisions can essentially set norms, prices, and wages throughout the entire economy. They may use that power for good, they may use it for bad. But they are using it, and folks need to start considering whether they're comfortable with the corporation's size, actions, and capabilities. In the past, this country has shown an extreme aversion to monopolies, believing that sort of private control over an economic sector a threat to the public good. Monopsonies are no less dangerous, and their existence should trigger similar amounts of reflection and consideration.