Monthly Archives: February 2020

The Great A&P Revisited

When it was published back in 2011, many readers took my book The Great A&P and the Struggle for Small Business in America as an allegory about Walmart: the battle between a highly efficient, vertically integrated grocery chain and the mom-and-pop grocers it was driving out of business seemed to parallel the modern conflict between the giant discounter and the locally owned retailers who could not match up. But things change: now, as I publish a second edition of The Great A&P, Walmart has almost ceased to be regarded as a villain, and the merchant most widely blamed for destroying brick-and-mortar retailers is Amazon.

Walmart is, in many ways, similar to A&P. Its sheer size enables it to bargain low prices for merchandise, it runs a highly efficient logistics operation, and it aims to build local market share, especially in food retailing, to gain efficiencies in distribution and advertising. In recent years, it has even followed A&P’s lead by integrating vertically: Walmart now bottles milk in its own plant, contracts with ranchers to raise Angus beef cattle to Walmart’s standards, and last month opened its first beef processing plant .

Amazon, on the other hand, is quite unlike A&P. The brothers who controlled A&P, George L. and John A. Hartford, stubbornly insisted on earning a profit; Amazon founder Jeff Bezos was willing to tolerate losses for years in order to build the business. For all Bezos’s ambition and imagination, Amazon’s rapid rise owed much to the federal government: in 1992, the U.S. Supreme Court ruled unanimously that a state could not collect sales taxes on goods sold to its residents unless the seller had physical presence in the state, which gave Amazon a huge advantage. By the time the Supreme Court unanimously reversed itself in 2018, declaring that its 1992 decision “creates rather than resolves market distortions,” Amazon was well established and hundred of thousands of retail establishments had closed their doors. Amazon also benefits immensely from its ability to capture and use more customer data than its competitors, allowing it to control pricing and product selection in a way that A&P could not. In the twenty-first century, information technology creates economies of scale in ways that were impossible in the Hartfords’ day.

These differences point to the need for fresh thinking about competition. Those who argue that the only test of excessive market power is whether a firm can raise prices to consumers did not foresee that consumers might be asked to pay by surrendering personal information rather than dollars and cents, or that a seller can change prices instantaneously based on an individual consumer’s behavior, or that its trove of information about customers might give an established company an unsurmountable advantage over potential challengers. Unfortunately, the dusty volumes of court rulings about monopoly dating back to the 1890s provide only limited guidance for measuring market power in the digital age.