A thought on Price Discrimination and Wal-Mart

Just finished this previous post on price discrimination, and it triggered a thought.  Economists spend a  lot of time (particularly in a principles course) discussing market structures like monopoly.  We don’t spend enough on it’s reverse equivalent, monopsony.    In monopsony, there’s just one buyer, often inelastic supply, and barriers to entry of new buyers.  In monopsony or monopsonistic markets, the monopsonist (big buyer) gets very high profits and forces prices too low to be efficient.   Wal-Mart is very monopsonistic.  See the video “Is Wal-Mart Good for America?” for background on how much power Wal-Mart has a buyer.

The behavior Wal-Mart exhibits with it’s suppliers is consistent wit price discrimination, only it’s monopsonistic price discrimination.  Wal-Mart forces the price to the lowest physically possible for each individual supplier based upon internal data of costs of that supplier. That’s the monopsonistic equivalent of a monopoly seller knowing/discovering the preferences and utility valuations of a buyer.