The one weird monopoly trick that gave us Walmart and Amazon and killed Main Street

🌈 Abstract

The article discusses the history and impact of the Robinson-Patman Act, a law that aimed to prevent large companies like Walmart from using their buying power to demand preferential pricing from suppliers. It explains how the Reagan administration's decision not to enforce this law led to the rise of Walmart and Amazon, and the decline of Main Street businesses. The article also explores the broader implications of this policy choice on the American economy and the balance of power between large corporations and smaller businesses.

🙋 Q&A

[01] The Rise of Walmart and Amazon

1. What was the key policy decision that enabled the rise of Walmart and Amazon? The Reagan administration's decision not to enforce the Robinson-Patman Act, which made it illegal for powerful companies like Walmart to demand preferential pricing from their suppliers.

2. How did this policy decision impact the American economy and Main Street businesses?

• It allowed Walmart to demand deep discounts from suppliers, putting smaller mom-and-pop stores at a disadvantage since they couldn't match those discounts.
• This led to the decline of Main Street businesses and the rise of big box stores and online retailers like Amazon.
• It also meant that the profits from these large companies were often shifted to "onshore-offshore" tax haven states, reducing the tax revenue for local communities.

3. What is the "flywheel" strategy that large companies like Amazon use to maintain their dominance? The strategy involves using their buying power to demand lower prices from suppliers, which allows them to offer lower prices to customers, which in turn brings in more customers and enables them to demand even lower prices from suppliers.

[02] The Robinson-Patman Act

1. What was the purpose of the Robinson-Patman Act? The Robinson-Patman Act was designed to prevent large companies from using their buying power to demand preferential pricing from suppliers, in order to protect smaller businesses and maintain a diverse economy.

2. How did the courts initially interpret the Robinson-Patman Act? For decades, the courts refused to interpret the Robinson-Patman Act and the earlier Clayton Act according to their plain meaning, tying themselves in knots to argue that the laws couldn't possibly mean what they said.

3. What was the role of Wright Patman, the author of the Robinson-Patman Act? While Patman had some problematic political views, the article argues that this doesn't invalidate the substance and history of the law that bears his name. The goal of the Robinson-Patman Act was to preserve a diverse economy, not to create a permanent small business-only economy.

4. Why did large corporations historically hate small businesses, and how does this relate to the purpose of the Robinson-Patman Act? Large corporations hate small businesses because they can't control or capture them the way they can with large, concentrated industries. Small businesses introduce diversity and unpredictability into the political and economic system, which is why the Robinson-Patman Act was important for maintaining a balance of power.