The size of Wal-Mart is astounding. It is not only the largest company in the world, but in the history of the world. It is also the largest retailer in the United States, Mexico, and Canada. Because of its sheer size and impressive market power, Wal-Mart has been the envy of competitors, the bane of suppliers, and a godsend to consumers. Their efficiency gains and economies of scale enable them to charge lower prices than many of their competitors. Because of this market power, Wal-Mart is able to induce concessions from suppliers that want in on a piece of the action. On the tail end, customers may have mixed feelings about Wal-Mart, but they do know that Wal-Mart is able to give them the goods they want at the cheapest price. Wal-Mart's ability to persuade its suppliers to furnish them with the lowest possible prices is a concern to some. Antitrust law is the legal tool that the public and government have to combat anticompetitive business practices'. It is my intent to support the argument that Wal-Mart should indeed raise some legal eyebrows, but whether or not they are guilty of antitrust violations remains to be seen.

To better understand the possible harms antitrust attempts to protect consumers from, an explanation of relevant economic theory is warranted. In order to make a distinction between harm and benefit, it is imperative to understand the theory of monopoly, monopsony, and bilateral monopoly.

A monopoly occurs when there is one dominant seller in the market. This seller faces a downward sloping demand curve, i.e. the market demand curve. The negative sloping of the demand curve means that in order to sell more products, the firm must lower its price. Thus, the firm's marginal revenue curve lies below the demand curve. The upward slope of the marginal cost curve, which symbolizes the added cost for producing one more unit, intersects with both the marginal revenue and demand curves for the firm. Monopolistic firms will choose an output where marginal revenue equals marginal cost. In the long run equilibrium, these firms will earn zero profits, as they must keep their prices low enough to deter entry into the market.1 The monopoly firm will restrict output to a level that is lower than there would be in a competitive market. Monopolization is the process by which large sellers utilize their market power to extract economic rents from buyers in the market. It is a transfer of wealth from the demand side to the supply side, and makes consumers worse off via dead weight loss.

"Buyer power" is the ability of the demand side of the market to exercise market power over suppliers to reduce prices below the level that would emerge in the competitive market. This ability gives rise to monopsonies, which are the mirror images of monopolies in that there is a transfer of economic rents from one side of the market to another, in this case from the suppliers to the buyers.

Bilateral monopoly is a situation that involves a monopolist supplier selling to a monopsonist buyer who may also be a monopolist as the producer or seller of end goods. Under these circumstances, it may be possible for the monopsonist to exercise its buyer power in order to extract rents from the monopolist supplier.2

Rents take three different forms: Ricardian rent, monopoly profits, and quasi-rent. Ricardian rent is created by variations in the productivity of factors of production. Thus, the resulting output per dollar differs among them. In this particular case, monopsonies can use their buyer power to transfer Ricardian rents from more productive suppliers to the monopsony. Monopoly profits are the "excess revenues over long-run total costs of production" that are created when a seller exercises its market power. Monopsonists can extract these rents from the monopoly. "Quasi-rents are the difference between the supplier's total revenue and short-run total costs".2

When in business, a supplier may have sunk costs in the form of production technology, specialized capital, etc. These resources cannot be easily switched to other uses. In the short run, the firm does not need to earn a return on these investments, but in the long run, it is necessary for the firm to earn quasi-rents to cover its investment. Otherwise, the firm will not reinvest in or replace these resources as they become obsolete. It is possible for a monoposonist to extract quasi-rents in the short term, but only for as long as the resources remain useful in supplying the market. Suppliers that do not make returns on their investment are put at a disadvantage, as they may not be able to continue to invest in things like research and development.2

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The basic conflict is the struggle between the monopsonist buyer coercing rent from the monopolist seller. The monopsonist often employs perfect price discrimination, or "all or nothing" deals. If the buyer has market power and the supply curve is rising, the average unit price will induce the supplier to supply at below the competitive market price, while still supplying at the same quantity as if the market were competitive. This makes the last unit of the monopsonized good still equal to the marginal cost of production. Thus, the monopsony power wielded by the firm does not affect "price, quantity, ...

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