Companies can’t start up and fail for zero cost. Which allows Walmart to raise prices without instantly getting competition in those areas. In higher population areas that can support more stores it’s a very different story.
> Companies can’t start up and fail for zero cost.
Retailing companies? Sure they can. If Walmart started selling products for $5 that retail for $1 elsewhere, anyone could sell the ten they already have in their kitchen to their neighbors for $4.50 each, then use the money they just made to drive to the next town and buy twice as many. Before they've even run out of vacation days at their real job they're doing half the business in the town and can afford to rent a storefront month to month and hire some college students to mind the store.
The second Walmart lowers their prices again, they sell their remaining inventory for the normal retail price instead of the inflated one and then shut down. Assuming they haven't built enough volume and loyalty in the local market by then to continue operating and keep half the town's business indefinitely.
In a ~3% margin business the difference between 1$ and 1.05$ is huge. But, nobody is going to be selling canned tuna out of their basement for under 10 cents profit on the can.
Which is the real power of monopoly pricing, it's not obvious that spending 1.05$ is vastly worse than 1$ but it makes a huge difference to a companies bottom line.
> In a ~3% margin business the difference between 1$ and 1.05$ is huge. But, nobody is going to be selling canned tuna out of their basement for under 10 cents profit on the can.
The margins are only ~3% because the barrier to entry is low. Imagine what their margins would be if they had an actual monopoly on food.
> Which is the real power of monopoly pricing, it's not obvious that spending 1.05$ is vastly worse than 1$ but it makes a huge difference to a companies bottom line.
It's not obvious that spending $1.05 is vastly worse than $1 because it isn't. It's not even clear that the hypothetical five cents even exists -- if Walmart is charging $1.05 because their cost is $1, and they have no competitors because the next most efficient retailer has a cost of $1.07, Walmart is charging you less than the competitor(s) they put out of business, not more.
And that would still be true if they reduced their own cost to $.25 without lowering prices further, when no competitor could reduce costs in the same way, though that rarely actually happens. Squeezing 5% more out of a supplier is a lot more realistic than squeezing 75% more out of them.
Walmart prices do vary. In some places grocery competitors like Aldi do shade many of their prices significantly (and consistently, not just loss leaders).
Prices in different stores vary for a lot of reasons. One area will have higher real estate costs or higher taxes, or a lower volume of customers to amortize fixed costs over.
This is also why a new competitor opening up seems to cause prices to decline significantly. Part of it is the competition, but part of it is that the same factors that allowed the competitor to justify opening a new store (e.g. a tax cut or population growth) also allow the existing store to reduce prices.
Retailing companies? Sure they can. If Walmart started selling products for $5 that retail for $1 elsewhere, anyone could sell the ten they already have in their kitchen to their neighbors for $4.50 each, then use the money they just made to drive to the next town and buy twice as many. Before they've even run out of vacation days at their real job they're doing half the business in the town and can afford to rent a storefront month to month and hire some college students to mind the store.
The second Walmart lowers their prices again, they sell their remaining inventory for the normal retail price instead of the inflated one and then shut down. Assuming they haven't built enough volume and loyalty in the local market by then to continue operating and keep half the town's business indefinitely.