Wednesday, September 14, 2011

Are Chain Stores Good or Bad?

"Are chain stores good or bad? According to Professor Art Carden, there are reasons to both like and dislike chain stores. The reasons to like chain stores include their ability to lower prices, increase variety, and reduce uncertainty. However, chain stores also do things to dislike such as pursuing special government privileges like subsidies and eminent domain.

Essentially, when chain stores respond to the incentives of the market, they create wealth for society. On the other hand, when chains stores respond to the incentives of the political process, they often produce detrimental effects for society."


At 9/14/2011 9:47 AM, Blogger The Beach Cities Real Estate Blog Team said...

Amazing that he quoted Ice-T!

At 9/14/2011 11:50 AM, Blogger sethstorm said...

Then why does it take a PR team from the chain store to buy up the city council, then proceed to separate/marginalize the people who don't want it there?

At 9/14/2011 8:24 PM, Anonymous Anonymous said...

Not sure he makes a great case. Why does he think chain stores innovate more? Perhaps you could argue that by being bigger they can take more chances than some mom-and-pop store 70 years ago, but it's the online outfits like Newegg or Amazon that are innovating now, not the chains. As for variety, he seems to be arguing that by spending less at Wal-Mart, the consumer has more money to spend on ethnic cuisine, which is only a secondary effect. And perhaps at one point, the Sears catalog brought a lot more variety to a small town than your local hardware store, but it is now the online sites that offer much more variety.

As for consistency, that may have been a benefit at one point, particularly for someone driving around the country, but it's actually a burden now. Whenever I visit a new city, I don't have to just go to McDonalds, I can go to online review sites like Yelp or urbanspoon and find the best local place easily, right on my smartphone. This is going to destroy the chain food business in the coming years, as I can find the best local burger or Chinese joint and don't have to settle for "consistency." As for subsidies, the smaller stores got them too, though he's probably right that the bigger chain stores used their muscle to extract more govt subsidies.

He seems to miss the biggest advantage of chains though, the negotiating advantage that Wal-mart has when dealing with suppliers, who they can extract lower prices from in return for bigger purchases of their Frosted Flakes. That scale comes at a price though, because it assumes that the consumer's desires are fairly homogenous and that most of us want to eat a ton of Frosted Flakes, which increasingly isn't the case anymore, as we are getting used to much more variety. So what was once an advantage is increasingly becoming a burden there also, which is why all the chains are dying off and will all be dead within a decade or two.


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