Walmart’s market capitalization recently exceeded $1 trillion, making the retailing giant the second non-tech company (Warren Buffet’s Berkshire Hathaway was the first) to join the trillion-dollar club. Businessman Sam Walton opened the first Walmart in 1962 in Bentonville, Arkansas. Over the next twenty years, Walmart expanded throughout the south.
In the eighties and nineties, Walmart opened stores in the rest of the country. By 1995 there was at least one Walmart in every state. As well as stores in Canada, Argentina, Brazil, and other countries. Fast forward to today and Walmart has more than 10,800 stores in 29 countries. Walmart employs 2.1 million workers or associates—making them America’s largest private-sector employer and the company with the world’s largest workforce.
Walmart’s success stems from Sam Walton’s decision to keep prices low at the expense of (temporally) reduced profit margins. Walmart built large stores capable of offering a wide variety of products. Walmart also owes its success to continued innovation to better serve its customers. In 1983, Walmart opened Sam’s Club, a member-only discount grocery store. In 1988, Walmart opened its first Supercenter.
Supercenters include all of Walmart’s traditional offerings along with an expanded grocery section, auto and optical service centers, and even a McDonald’s or other fast food restaurant at some locations. Thus, you can go to a Supercenter to get your oil changed—and while you wait have a cheeseburger, do your grocery shopping, get new glasses, pants, and a flatscreen TV! Today, in addition to Supercenters, many regular Walmarts have an auto service department, a restaurant, and an expanded grocery section.
Walmart’s rise has not been without controversy. The company has been attacked for putting small, independent mom-and-pop stores out of business with its low prices and convenience. Walmart has also been attacked for undermining American manufacturing by selling cheap foreign goods. What these critics ignore is that no one is forced to shop at Walmart. Consumers choose to do do because they benefit from the low prices and convenience. The money they save can then be spent on other priorities. Thus, Walmart increases the average American’s quality of life.
Today, many of the same criticisms that were once aimed at Walmart are being leveled at Amazon. Like Walmart, Amazon owes its success to low prices and convenience. Amazon’s quick delivery is particularly appealing to consumers. Such quick delivery has led to claims that Amazon imposes harsh working conditions on its employees in order to meet guaranteed delivery times. Amazon is also attacked for driving brick-and-mortar retailers out of business. These complaints ignore the many small businesses that have used the Amazon platform to reach new customers. They also ignore how many brick-and-mortar stores have successfully established an online presence.
The best example of a brick-and-mortar store that has successfully integrated its website with its physical stores is Walmart. Walmart is the second most popular e-commerce site in America and the sixth most popular site in the world.
Walmart is now working to integrate artificial intelligence into its operations. If Walmart and Amazon were true monopolies, they would not continue to innovate or keep prices low. Instead, they would use their monopoly power to raise prices and not spend valuable capital developing new services. The reason Amazon and Walmart must continue to innovate in order to stay competitive is that they lack power to block new competitors with new goods and services from entering the marketplace. Therefore, the only way for these companies to maintain their positions as market leaders is to continuously ensure that their products match the ever-changing needs and wants of consumers.
Instead of demonstrating the need for government to aggressively enforce antitrust laws to break up large firms—Amazon and Walmart demonstrate how, in a free market, leading companies must continue to innovate and stay abreast of changing consumer tastes..
This is why federal antitrust enforcers should focus on removing barriers to new competitors entering a market—and not on limiting the size of current market leaders. In most cases, they will discover that these barriers are caused by government regulations, and that free markets promote competition and limit monopolies to the benefit of consumers.
