Or maybe not, but they are taking serious steps to either purchase or become a bank. They currently have built alliances with financial service providers such as Money Gram International and Sun Trust Banks. The idea of Wal-Mart introducing itself fully into the banking industry sends shivers through retailers and other financial institutions alike. Wal-Mart has excellent economies of scope to expand a potential banking business to an enormous size due to the fact that it contains much of the physical capital it needs and has many stores all over the world which would facilitate money transfers. Besides this, it will eat up even more of the retail market by lowering prices and providing financial services and/or very attractive payment plans for purchases at its stores, thus capturing a new (very low) socio-economic market.This seems like a great plan for Wal-Mart and for most of us, but it deters equitable and fair competition for other firms that suffer because of Wal-Mart’s huge economies of scope and its ability to have the lowest prices and maybe soon, the lowest loan rates. Banks and retailers who are in the market will lose a lot of customers and the barriers to entry into any of the two industries will be raised enormously if Wal-Mart reaches its objective.
The only force that can stop Wal-Mart right now is government regulation (specifically the FTC). The government may prohibit Wal-Mart from owning or operating a bank because this behavior may be perceived as anti-competitive. However, Wal-Mart is still exerting a lot of pressure in order to open up a bank. If and when they do, the government will make sure there are enough restrictions imposed upon Wal-Mart and its bank in order to foster healthy competition throughout the economy.
Always low prices and rates? We think not.
Sources: http://www.businessweek.com/magazine/content/05_06/b3919046_mz011.htm
http://www.epinet.org/content.cfm?id=2328
Authors: Adam Koussari-Amin, Amy Peckinpaugh, Braden Rotberg and Fabio Vanegas.
1 comment:
Wal-mart is pretty powerful already and with an addition of a bank Wal-Mart could take over the market. Wal-Mart could expand, halting entry into the market and become a monopoly in the market challenging the Sherman Act. Stopping Wal-Mart from expanding would be wrong, they have the right to. However, to diminish the monopoly the government must regulate by restricting Wal-Mart in their venture. The bank could produce good results for the economy as long as competition can enter into the market.
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