Wal-Mart in the Oligopolistic Market

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Wal-Mart definitely is not in a monopolistic market as there are other firms that are competing for market share and profits. A monopolistic firms generally reaps both short term and long term profits from the market by charging high prices for the products that it offers. Wal-Mart does exactly the opposite where it ensures that it’s prices are the lowest in the market. This indicates an oligopolistic behavior of firms like Wal-Mart whose focus is to drive other competing firms out of the market by keeping the competition tight and profits negligible. For some of the firms this results in costs overshooting the profit forcing them to exit the market. So clearly, Wal-Mart portrays an oligopolistic firm behavior. An oligopolistic market has the following characteristics –

1. Fewer Sellers: A few firms are so large relative to the total market that they can affect the market price. This results in Mutual Interdependence where an action by one firm may cause a reaction on the part of other firms. 2. Either a homogenous or a differentiated product: Buyers may or may not be indifferent as to which seller's product they buy. 3. Difficult market entry: Formidable barriers to entry. For example, exclusive financial requirements. Price very close to cost which does not interest the entrant.

With effective inventory management, low wages to employees, larger work force, pressure on suppliers to reduce costs, Wal-Mart ensures that the average cost is very low as compared to other competitors in the market. Wal-Mart would still reap profits, it being a preferred retailer for majority of the customers but would exert a pressure on firms that are not able to reap any profits due to high infrastructure costs, high procurement costs and a low customer base forcing them to exit the market.

To reduce costs further, Wal-Mart imports bulk orders from Asia Pacific for low cost products. This further increases the threat to the competing firms as there would be more...
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