Blackadder’s Lair

The home of many a cunning plan

Wal-Mart vs. Mom and Pop

One of the most common criticisms of Wal-Mart is that it drives small “Mom and Pop” businesses out of business, because they can’t afford to compete with the larger store’s prices and selection. If true, this would be a mark against the company (though whether this downside would be more than compensated by, say, the store’s lower prices and wider selection is a different matter). But is it true?

According to a recent article in Regulation by West Virginia University profs Andrea Dean and Russell Sobel, the answer is: not really. Dean and Sobel compared the number of small businesses in operation to the number of Wal-Marts both by state and over time. What they found was that while the presence of Wal-Mart in a community did affect the types of small businesses likely to be present in that community, it didn’t reduce the number of small businesses in the community overall. In other words, communities with a Wal-Mart tended to have fewer small businesses that were direct competitors with Wal-Mart (for obvious reasons), but they also tended to have more small businesses that weren’t direct competitors.

This isn’t terribly surprising. If people can buy there food and clothing at Wal-Mart using a smaller percentage of their income than they could buying from other stores, doing so will free up money that can be spent on other things, creating business opportunities that wouldn’t be there otherwise.

Dean and Sobel’s article can be found here. As with my post on Wal-Mart a few days ago, I don’t mean to suggest that Wal-Mart is perfect, or that it never does anything wrong. My point is merely that, if this study is correct, then one of the more common criticisms of Wal-Mart is not.

(HT: Cafe Hayek)

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May 10, 2008 - Posted by | Capitalism, Economics

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