Walmart is the worlds largest retailer as a consequence it...

Walmart is the world's largest retailer. As a consequence, it has sufficient bargaining power to push its suppliers to lower their prices so it can honor its slogan of "Save Money—Live Better" for its customers. a. Is Walmart acting like a monopolist or monopsonist when purchasing goods from suppliers? Explain. b. How does Walmart affect the consumer surplus of its customers? The producer surplus of its suppliers? c. Over time, what is likely to happen to the quality of products produced by Walmart suppliers?

Transcript

00:01 So here in a, i would say that walmart is acting like a monopsonist, right? they have, are the sole purchaser from certain suppliers, right? walmart orders a ton of stuff, and supplying walmart may be all your company can handle.

00:22 And if walmart is the only customer that your company can handle, walmart is a monopsonist.

00:28 They are the only person that buys from you.

00:30 And it's the only person that buys from you.

00:33 They have a lot of power over you.

00:35 They're not a monopolist because when walmart is selling stuff, they compete with many other places.

00:41 They compete, for example, with amazon.

00:43 Walmart and amazon compete in selling a lot of products.

00:46 So you couldn't call walmart a monopolist because they don't have a monopoly over any particular type of product.

00:52 But they do have monopsinist power over certain suppliers, right? who only sell to walmart, right? and that's often due to size, right? this walmart is very, very big, and that means sometimes a supplier can only work for walmart, right? if i'm a small supplier, i only sell to walmart, that makes, you know, due to my size and the fact that i cannot supply walmart and other firms, walmart has monopsony power over me.

01:25 So b, what walmart is trying to do is to be, it increases consumer surplus at the expense of producer surplus, right? consumer surplus is driven by low prices and high queue, right? and at walmart, this is what you get.

01:52 Consumers want a lot of stuff and they want it for cheap.

01:58 And that's what walmart specializes in giving them.

02:01 The lower the price, the higher the quantity, the bigger the consumer surplus triangle, right? but the producer surplus wants a high p and a high q...

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