Isn't Competition Grand?: Wal-Mart, Drugs, and Antitrust

Cite this Article
Josh Wright, Isn't Competition Grand?: Wal-Mart, Drugs, and Antitrust, Truth on the Market (October 25, 2006),

Fred Tung highlights Wal-Mart’s new strategy of selling a month’s supply of 300 different generics for $4, noting that Target will match Wal-Mart’s prices but Walgreens and CVS will not. Isn’t competition grand? Well, not everyone is convinced that low prices for consumers is a good thing.

Unsurprisingly, for instance, this strategy has not gone over well with smaller pharmacies who have much to lose from increased competition. A BNA Health Care Report (HT: David Fischer) notes that “community” pharmacists are planning to ask state AGs to investigate whether Wal-Mart’s $4 generic program is designed to avoid state predatory pricing laws. John Rector, the senior VP and general counsel of the National Community Pharmacists Association, accused Wal-Mart of introducing the program in states (now expanded to 14) without predatory pricing laws.

Wal-Mart has been a popular issue for legal scholars, see e.g., this symposium at UConn, Thom’s post on outsourcing, and this post from Gordon Smith which mentions in passing that a JLR search of Wal-Mart produces 5799 documents!  While I realize that Wal-Mart “the phenomenon” provides fodder for legal discussion across many areas of substantive law, the antitrust issue seems to be picking up traction. The above-mentioned symposium, for instance, includes a panel entitled “Breaking Up the Big Box: Trade Regulation and Wal-Mart.”

I have written in this space before about the unconvincing antitrust case against Wal-Mart. This suit against generics appears to fall in the same category as the general lament against competition and low prices appearing in Barry C. Lynn’s essay in Harper Magazine (to which I respond in this post): “Breaking the Chain: The Antitrust Case Against Wal-Mart,”

“to defend Wal-Mart for its low prices is to claim that the most perfect form of economic organization more closely resembles the Soviet Union in 1950 than 20th century America. It is to celebrate rationalization to the point of complete irrationality.â€

The notion that low prices can form the basis of any reasonable argument for an antitrust attack on Wal-Mart is laughable. Of course, antitrust does allow for the remote possibility that predatory pricing strategies allow a firm to use low prices to drive out rivals and recoup monopoly profits in the future. But such consumer welfare losses are not only generally unlikely, but especially improbable in a retail segment characterized negligible barriers to entry and consistently low profit margins. Further, the empirical contradicts this theory at every turn. For instance, Jerry Hausman and Ephraim Leibtag’s econometric analysis of the impact of Wal-Mary entry on consumer welfare suggests that Wal-Mart brings enormous gains to consumers.

At the end of the day, these complaints are transparent. They are not about consumers. They are not about protecting competition. And they are certainly not about efficiency. These are complaints about the competitive process itself. My response to Lynn’s call to arms to use federal antitrust law to level an attack on Wal-Mart designed to equalize distribution chain bargaining power seems equally applicable to private actions under state antitrust law against low priced generics:

The antitrust attack against the retailer that has been a boon to consumers is incredibly misguided because it invokes the wrong tool (antitrust law) to engineer a market structure that will certainly harm consumers without any meaningful benefits. The Antitrust Feds ought to leave Wal-Mart to its consumer welfare increasing ways and focus on endeavors that are more likely to help consumers than hurt them.