Politics from the Palouse to Puget Sound

Sunday, August 27, 2006

Debunking the Wal-Mart Myths #3: Wal-Mart Does Not Benefit Consumers

Wal-Mart Myth #3 debunked by Steven Peterson, U of I Research Economist, at the Moscow Chamber of Commerce luncheon last Wednesday.

Charge #3: Wal-Mart Does Not Benefit Consumers

Fact: Wal-Mart lowers prices

  • Wal-Mart lowers retail trade prices by directly offering lower priced merchandise in Wal-Mart stores; by lowering the retail trade prices of competitors; and by creating dynamic efficiencies over time through product and distribution innovations and efficiencies.

  • In various studies Wal-Mart was found to have lowered retail trade prices between 8% - 39%; and food prices to consumers by approximately 25%-48%.

  • Fact: Wal-Mart raises real incomes

  • Wal-Mart raises family incomes: A study conducted by Global Insight found that Wal-Mart saves the average family $2,329 per year. If we assume that there are 13,059 households in Latah County then the total county consumer savings from Wal-Mart are approximately $30.4 million per year. Lower consumer prices raise real earnings and increase real wealth. A lower price has the same effect as an increase in real earnings or wages.

  • I would add that Wal-Mart particularly benefits lower income consumers. A 2005 MIT study on behalf of the National Bureau of Economic Research found that the poorest segment of the population benefits the most from the existence of discount retailers. Researchers Hausman and Leibtag concluded that the entry of a Wal-Mart Supercenter into a market saved 25% on food expenditure and since lower income households tended to shop more at Wal-Mart, a "decrease in consumer surplus arises from zoning regulations and pressure group tactics that restrict the entry and expansion of supercenters into particular geographic markets."

    Jason Furman's paper “Wal-Mart: A Progressive Success Story” found that Wal-Mart's discounting on food alone boosts the welfare of American shoppers by at least $50 billion a year. The savings are possibly five times that much if you count all of Wal-Mart's products. As a force for poverty relief, Wal-Mart's $200 billion-plus assistance to consumers may rival many federal programs.

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