Blogging from the Highlands of Scotland
'From fanaticism to barbarism is only one step' - Diderot

Wednesday 6 September 2006

For 'Monopoly' read 'Monopsony', or you could just say Wal-Mart

A monopoly in the market is when one company supplies most or all of a given product or service to a multitude of buyers - and can, theoretically, charge what it wishes to in order to supply that product, purchasers having no choice but to accept the terms offered if they wish to acquire the good or use the service. In such circumstances governments often impede pure market dynamics in order to 'protect' buyers from price-gouging.

A monopsony, on the other hand, is when one company is the only or dominant purchaser of a given product type, irrespective of whether that product is supplied by one or many suppliers. It is often referred to as a buyer's monopoly. This is where US retail giant Wal-Mart enters the picture. Through Ezra Klein, writing here, linking to this article in the Wall Street Journal, I am alerted to the influence Wal-Mart has come to have in setting the terms of sale of a class of product. The product in question is what Hollywood produces - films (aka 'movies', for US readers). What has happened is that Wal-Mart has intervened to warn studios not to give Apple a better deal for selling movies digitally through its video iPod download service, than those offered to Wal-Mart for selling physical copies of the same movies in DVD format. The 'warning' has been quite sufficient to modify drastically the studios' original plans for electronic sales via Apple's iPod service. It can do this because it alone is responsible for over one third of all movie sales in the US. As Ezra Klein remarks, Wal-Mart's actions are perfectly rational from its point of view - however, whether it is a happy situation for the retail purchaser is much less certain.

Wal-Mart is the owner of Asda, a major supermarket retailer in the UK.

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