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Antitrust Case: Wal-Mart

The antitrust laws were created to enhance competition in the market. The law provides equal opportunities to all firms in the market, and regulates firms which develop strategies to hinder other firms from competing with them. The government aims at creating competition in the market so that firms can provide the best quality products at fair prices. This law protects firms and consumers as well (Hylton, 2003). Wal-Mart is an example of a company that has been reported to contravene the provisions of the antitrust laws. In many occasions, the company has experienced lawsuits in protest to contravention with antitrust laws.Wal-Mart operates a chain of retail stores, and has dominated the US market. The firm has the characteristics of a monopsonist. A monopsonist refers to a situation where a single firm dictates the supply of products in the market. In such a situation, only one buyer seeks the products of several suppliers. This gives the monopsonist the opportunity to dictate the market by offering low prices to suppliers (Besanko, 2011). A monopsonist operates at a point where marginal cost (MC) is equal to marginal revenue (MRp). Therefore, the firm gets extraordinary profits because the demand is equivalent to the aggregate demand of supply. From the diagram below, it is evident that monopsonist gets abnormal profits because the labor demand is higher while the wage price is low.Source: Haworth (n.d.). Wal-Mart has been accused of applying the strategies of a monopsonist despite the fact that many similar firms exist in the market. For example, Coca-Cola Company has been forced by Wal-Mart to sell its products at very low prices. Since Wal-Mart has the capacity to buy many products from Coca-Cola, the company has developed the strategy to offer low prices. Wal-Mart has also been accused of offering low wages to the workers. The company has employed many people, and has taken the advantage of being a top employer by offering very low wages. Labor unions have complained about the low wages offered to workers by the firm (Lynn, 2006). In 2005, Wal-Mart and Netflix were accused of colluding to create a monopoly in the DVD market. The two companies had developed a strategy to divide the market for DVDs. This was done to reduce competition in the market. The agreement was that Wal-Mart would not rent DVDs through the online channels. This would offer Netflix the opportunity to sell DVDs in the market. This strategy was adopted when Blockbuster Company started to sell DVDs through online systems. The strategy developed by Wal-Mart and Netflix would make Netflix the sole marketer of DVDs, and this would drive away any other company in the industry. As such, suppliers of DVDs would be influenced to offer their products at low prices. Netflix started to offer competitive prices to its subscribers, with an attempt to drive all competitors out of the market. The two companies were sued, and they were found guilty of contravening the antitrust laws. The two companies were fined $40 million (Bloomberg News, 2010). In conclusion, it is worth mentioning that antitrust laws were developed to protect companies from unfair business conduct. The laws give opportunities to firms to exploit the market with no restrictions from any single company. A free market environment has been encouraged to create competition. Wal-Mart continues to practice unfair business, and this has made the company to be fined for failing to adhere to the antitrust laws.

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