Predatory Pricing in the Retail Trade: The Wal-Mart Case

Abstract

In 1987, Wal-Mart began selling pharmaceuticals in Faulkner County, Arkansas. Consistent with its overall retail strategy, Wal-Mart sought to sell a high volume of pharmaceuticals at low margins. Wal-Mart’s explicit policy was to never be undersold on a pharmacy item. Although the manager of each local Wal-Mart pharmacy had no authority to raise prices above those set at Wal-Mart’s headquarters, each manager was permitted to lower prices to beat those charged by rival retailers even if these prices were lowered below the wholesale prices paid by Wal-Mart for the individual items it retailed.

The author wrote an amicus brief, submitted by the Institute forJustic, in support of Wal-Mart’s appeal. Malcolm Coate, Don Dewey, Ken Elzinga, David Fontaine, Dave Kaseman, Andrew Kleit, Dwight Lee, john Lopatka, Fred McChesney, Roger Meiners, Adam Pritchard, Curtis Simon, Steve Walters, and Bruce Yandle all offered valuable discussion and commments.