Since its humble beginnings, Walmart has quickly expanded into one of the more dominant companies in the nation. Several people love Walmart, as they can grab anything they need at one location.
Still, many complain that Walmart is a monopoly. Is this an accurate statement, or could Walmart’s market structure be explained with a different term? I researched Walmart and the market characteristics that make up a monopoly, and here’s what I’ve learned.
Is Walmart a Monopoly?
Although Walmart has several traits of a monopoly due to its dominance in the retail industry, however, it’s still not considered one. For example, companies that offer similar products, like Costco, Amazon, and Target, can still compete with Walmart. Since there’s monopolistic competition, Walmart is not considered a true monopoly.
If you are still unsure if Walmart is a monopoly, read along to see what I found out!
What Is a Monopoly Market Structure?
A monopoly is a market structure in which only one company sells a product, and there are no close substitutes for that product.
That said, there are four types of monopolies, including:
These companies arise when their supply curves exceed demand curves, and they can capture economies of scale.
An excellent example of this would be the electricity industry, where the cost of additional production decreases as the quantity produced increases.
Legal Or Government Monopolies
These companies arise when a patent or copyright law restricts competition for a certain period on an innovative product or process, such as pharmaceuticals and drugs.
Technological monopolies occur when the production of a good is controlled by one company, like Apple iPhones.
A geographic trust arises when there are no other producers of a good or service in an area, like the NFL in the US.
How Is Walmart Like a Monopoly?
One way to tell if a company is a monopoly is to see if it dominates a sector.
Another indicator that a company might be monopolizing an industry is little or no competition for its goods or services.
For example, if you can’t find substitutes from other companies, there’s probably a monopoly in the sector.
Moreover, Walmart is the world’s largest retailer and is a dominant player in the global retail sector, with revenues of $559 billion (2021) and a market share in grocery that’s nearly 60%.
Not only is Walmart dominant in grocery sales, but the company also dominates in most categories, including apparel, home furnishings, and more.
Often Walmart is criticized for being monopolistic because a monopolist has more than 50% of the market share of the goods they sell.
Clearly, with 56% of the grocery market, Walmart has shown this kind of power because it can afford to cut prices and offer discounts without significantly hurting its bottom line.
What Stores Compete With Walmart?
Unlike a company that is a monopoly, Walmart does have several major companies that are competitors in the retail industry, including:
Is Walmart an Oligopoly?
Rather than call Walmart a monopoly, it should more accurately be called an oligopoly.
With that, an oligopoly is a company with exclusive or dominant control of a particular industry or sector.
Obviously, Walmart has gained this type of control in the retail industry because it’s so large and offers deep savings unmet by competitors.
What Is Walmart’s Market Structure?
Walmart has developed a natural monopoly market structure to optimize efficiency in distribution, leading to lower wait times for products.
Due to this structure, it’s one of the few retailers implementing a centralized distribution system, enabling it to ship goods from its stores to customers in other regions.
Also, this strategy allows Walmart to minimize costs, and efficiency is increased by cutting down on transportation time and expenses.
Notably, this approach decreases the probability of errors, as there are fewer points of contact between products and their customers.
For example, Walmart can purchase products in large quantities for lower prices than its competitors because it does not have to deal with geographical constraints like small-scale retailers.
Additionally, Walmart uses what is known as a “just-in-time” inventory system, which requires it to respond to shifts in demand or unexpected product shortages quickly.
What Are the Characteristics Of a Monopoly?
When a monopoly exists in business, other companies have significant obstacles that prevent them from entering and succeeding in the industry.
For example, certain traits characterize the dominant company in a monopoly, including:
- Only a single seller is present
- A restricted or regulated market
- Heavily controlled prices
What Is Monopolistic Competition?
Although it’s not always fair to call a business a monopoly, another market structure exists called monopolistic competition.
In monopolistic competition, companies offer similar products or services, but there is no standard industry price.
For example, Nike and Reebok both offer athletic apparel but independently charge for items based on corporate pricing policy.
When monopolistic competition exists in an industry, businesses try to control the industry through price differentiation and additional non-price-related advantages.
What Is Walmart’s Competitive Advantage?
Walmart has a competitive advantage which is lower prices for customers than other similar retail companies.
With that, Walmart can achieve this advantage because it has a larger footprint than any other retailer.
For example, Walmart has over 11,000 stores across the US, and it can pass on cost savings to consumers by buying in bulk and negotiating better prices with suppliers.
Also, Walmart offers a wide range of products at a range of price points, so there is something for everyone, no matter their budget.