[barry-cotter]

All of the things you posit do occur. Costco employees are better, and better paid, than Walmart employees. That doesn’t mean both firms can’t exist in something close to the same market niche. And Costco’s strategy is not infinitely scalable. Paying more gets you better employees. It doesn’t automatically get you more profit.

[lotsofpulp]

There's a few segments of the customer market that will pay varying premiums for more customer service/quality, but only so much. Costco exists only in areas with above median wage shoppers, and can afford to exist by offering a limited selection of items sold in bulk. Similarly, a handful of retailers can afford to exist in this market, such as Trader Joes/Nordstrom/Apple/REI/etc, but most consumers are fairly price conscious and won't hesitate to shop elsewhere that offers lower prices. Or they can't afford the premiums for these places in the first place.