Monday, May 31, 2004
"...Under federal law, such discounts are legal if a toymaker can show it saves more money by selling to Wal-Mart than to its competitors, said Joseph P. Bauer, a professor of law at Notre Dame Law School. The more toys Wal-Mart buys, the more discounts it can demand from a manufacturer, he said"
Increasing returns in economics go back a long time - at least to Marshall. No one's really had a proper 'answer' for the 'problem' that various kinds of increasing returns (supply-side, demand-side, scale, adoption, etc) pose - which is not just monopoly, but a kind of viral monopoly: monopoly that grows across markets and industries. Wal-Mart, of course, is a great example.
The answer, I think, comes from strategy, not economics - strategy tells us that every business model decays, and the decay of Wal-Mart's model is more than evident. It should be considered an economic early-warning signal.