In my series on monopoly power, I hypothesized that the rise in price mark-ups that have been documented over the past 30 years is the product of relentless global competition, not monopolization as its traditionally construed. The story goes like this: massive firms using global supply chains cut costs so low that traditional mid-sized business could not compete on price or selection.
So, they had to move to something else. That something else is niche variety. which is just the right product for their customers. This speciality marketing requires investments in intangible capital that shows up in our standard economic measurements as a rise in mark-ups or monopoly power. Yet, it is really the relentless pressure of competition driving businesses to spend more and more time and energy search for a competitive advantage.
In my story, Wal-Mart was a key driver of this type of innovation. Yet now it seems that the growth of Amazon is driving Wal-Mart to search for its own speciality advantages.
NPR Money has the story:
Amazon found a new way in when it bought Whole Foods. Amazon immediately started lowering prices at Whole Foods. A lot of customers switched over from Walmart.
About a year ago, Walmart started a Culinary and Innovation Center, a little-known laboratory where specialists create new kinds of food. Fruits that can only be purchased at their stores. Special tomatoes that can be shipped cross country and still taste fresh. Bright yellow watermelon and cotton candy flavored grapes. Walmart hopes these exclusive items will be the next baby carrot— a food innovation that kids beg for, and that gets parents in the store.
The more I dig, the more I think varieties or business competence in the academic literature is the source of the rise in mark-ups.