Mr Pouck Cii Microeconomics

Using scarce resources, societies do the production of valuable goods and services and
distribute them to different individuals. As the requirement of Economic efficiency, an economy
need to produce the goods and services with the highest combination of quality and quantity given
the technology and scarce resources (Paul & William 2010:4).

In micro economics, objectives are efficiency and equity. The marginal costs and benefits
have much influence on rational economic decision making. There will be more production when
marginal benefits higher than marginal cost (Paul & William 2010:27). Otherwise, if marginal cost
is greater than marginal benefit, mostly will be less or stop production. Although there are three
economic systems in societies, namely, market economies, command economies and free market
economies, among them, totally planned economy (command economies) had been a quite popular
system in mid 1980s especially in Asian countries. However, most of those countries are
transforming to a market-based economies in early 2010s with its characteristics of deregulation,
privatization and safeguarding property rights.

Today, business trend is in globalization which focus is on economic integration among

nations. As developing as the nations, demands are raised that leads to the increasing of supply in
market. And, firms could enjoy the economies of sales with specialization which is a narrow range
of activities (Paul & William 2010:31). In that way, across the national borders, goods, services
and finance flow in dramatic growth.

A good example of a global player is Walmart Store Inc. which is one of the largest retailers
in the world. The company opened its first international store in 1991 and it has persuaded
globalization aggressively, since then. According to Vijay (g.) & Anil (k.g.), outside the United
States, the percentage of Walmart locating grew to 18% in 1998 from its original 1% in 1991. The
company’s sales increased to 5 percent while 4 percent of increased profits came from international
operations. To survive, growth is required and international arena is the only most significant
possibility for growth since the retailer has occupied most of the domestic markets. And, Walmart
was missing 96 percent of the potential customers in the world. Companies had been capitalizing
for growth with the help of the rapid expansion of IT, increasing cultural homogenization and
lower trade barriers, Walmart had no choice but to do the globalization aggressively.

Through its baby departments and e-commerce, Walmart deals baby items with
Equilibrium price and output. Since the company is under the sector of free market economy, the
price is defined based on the demand and supply. There’s less interference from government
regarding with the price. And, referring to the figure - 1, the demand curve is on the supply curve
and at the point I, Equilibrium happens.

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Price

Supply

P1 Equilibrium

Demand

0 Q1 Quantity

Figure – 1: Equilibrium Price and Quantity

Babies ‘R’ Us and Toys ‘R’ Us are shutting down its multibillion-dollar business for
bankruptcy. According to Erica (p.), Toys ’R’ Us took 15% of the 27 billion dollars U.S. toy market
on 2017 and selling $1.4 billion worth in just December. Erica (p.) said that, in 2017, in online
search terms, Toys ‘R’ Us owned the search results for 70% of toy-related keywords, such as “nerf
guns” and “dollars house”. And, Babies ‘R’ Us owned 81% of keywords in its arena, like “booster
seat” and “diapers”. So, that big market share of supplier quit from the market would create
shortages in baby items and toys that lead to the increasing in prices of other substitute products
in the market. There would be a shift in supply since the supply curve would made movement
along the demand curve which create a new supply curve and result in new equilibrium at point k
as below Figure.

Price New S2

Equilibrium S1

Pe3 k

Pe1 j g

P1

Demand

0 Q1 Quantity

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Figure – 2: Supply Shift (Decrease/Shrink) from S1 to S2

If the products are of types of a normal good which is commodity, handling those kinds of
price rising issues would be under the sector that have significant state ownership and government
planning. And, the government would interfere about the price of that product in some way like
controlling the maximum price. That could lead to the product shortage because of the gap between
the quantity supply and quantity demand as the result of the controlled price (ceiling) under market
Equilibrium (refer to Fig – 3). And, additionally, as the consequence of maximum price control,
all those supplies could be bought by ‘black marketer and it would be giving the chance to them
for playing the market Equilibrium price to higher. That means the appearance of the black market
for that commodity. With the price of government specified, the demand quantity would be greater
than the supply quantity and that would provide the great profit for ‘black marketers’ with the
black price which is even higher than the original price of market Equilibrium (refer to Fig – 4).
And, that would become the failure of government intervention.

Price

Supply

Controlled Price Market Equilibrium

(Ceiling)

Shortage Demand

0 Qtysupply Qtydemand Quantity

Figure – 3: Shortage caused by Controlled Price (Ceiling)

Price

Pb Supply

Pe black i Market Equilibrium

Pg market

Demand

0 Qtysupply Qtydemand Quantity

Figure – 4: Black market caused by Controlled Price (Ceiling)

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But, the baby products and toys are not under the sectors that have significant state
ownership and government planning, and instead of that, those products are under the sector of
privately owned. So, the price and production is determined by the interaction of supply and
demand. As a microeconomic concept, the rational economic decision making is based on the
marginal costs and marginal benefits. If the latter is greater than the former, more production will
be the outcome and otherwise, less (or) stop production will be result.

Walmart, one of the 3 big retailers, have been trying to seize the opportunity to gain the
market share of bankrupted Toys ‘R’ Us which again led to the shutting down of Babies ‘R’ Us
stores. According to Erica (p.), Walmart was adding floor space accommodated more toys for
holiday seasons in 2018. And, according to Jessica (b.) & Courtney (r.), it also has added thousands
of new baby products for online and dozens of new brands on 2019. Retailers have been revamping
their baby departments after Babies ‘R’ Us closed in 2018. Even though Toys ‘R’ Us went
bankrupt and Babies ‘R’ Us stores were shutting down, meanwhile, Walmart, Target and Amazon
were battling to pick the market share of those closing down multibillion-dollar business.

Instead of increasing the price of products, Walmart has selected the way of more
production for grabbing market shares and that economic decision making looks like supported by
profitability of substitutes and special influences such as low cost of Internet shopping. So, there
becomes an outward shift from its original supply (refer to Fig – 5) which is only the increment of
quantity while there are no changes on the price.

Price

S1 S2

P1 Supply Curve

Shifts Outwards

S1 S2

0 Qty1 Qty2 Quantity

Figure – 5: Supply Shift (Increase/Extend) from S1 to S2

Many Toys ‘R’ Us shoppers were, probably, favoring to shop at store-based retailers.
Deborah (w.) said that according to Coresight Research which surveyed the browsing and buying,
toys and games of U.S. consumers in recent days. As chart below (refer to Fig – 6), among Toys

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‘R’ Us shoppers, browsing at Walmart or Target is higher by double digits. According to Deborah
(w.), in browsing, Walmart was neck and neck with Amazon, while, in buying toys, it was the
No.1 retailer (other than Toys ‘R’ Us).

Figure – 6

Walmart stood out as winner in retail in 2018. To compete with Amazon, the company
continues pouring money into their businesses. Since more shoppers are using the online grocery
delivery service of the retailer and spending more per trip, its e-commerce sales surged 43 percent
in holiday quarter. At the same time, keeping the prices low and not sacrificing too much profit,
the retailer has been trying to stay competitive. According to Lauren (t.), Walmart has been pushing
customers to buy online and pick up in the store. That saves on delivery expenses and persuades
shoppers to buy more.

In many ways, Walmart is becoming more like Amazon. After Amazon’s announcement
of $800 million budget plan on April 25, for one-day delivery free, the company has been focus
on the supply chain and delivery speed. According to International Data Corp, Walmart is at the
third place, spending nearly $12 million last year on software, hardware, telecommunications
equipment and related staffing. According to Lauren (t.), in addition to its bricks and motor stores,
the retailer is trying to grow in advertising also for new revenue and income streams. Partnering
with digital brands, Walmart is trying to make its website more of a landing page for other well-
known brands.

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Meanwhile, the company is going deep into tech. It opened an intelligent Retail Lab (IRL)
just a few weeks ago. By out fitting the shop with high-resolution cameras, sensors and other
hardware, the company totally revamped the store. According to Lauren (t.), in that ways, Walmart
look for the solutions to simplify tasks such as stocking shelves and managing inventory. And,
now, a store camera there can tell how ripe a banana is, for example, and alert a worker to that.

To summarize, demand persuades for more supply and because of better & competitive
supplies, demands are increased. At the end, some of biggest winners in retail are heading into
2019. While some are struggling more than ever and greater than a dozen major retailers filed for
bankruptcy in 2018. Like the other retail winners, Walmart has been trying to grab the market
share and beat its rivals by persuading the customers with faster delivery service, better online
features and push mobile shopping, the trendiest products, and advanced technology (Artificial
Intelligence) apply.

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References:

1. Paul, A.S. & William, D.N., 2010, Economics, McGraw-Hill Education, 2 Penn Plaza,
New York.

2. Ivan, P. & Dale, L., 2007, Managerial economics, Blackwell Publishing, Malden, USA.

3. Erica, P., 2018, Carving up the Toys “R” Us bonaza, viewed 10 May 2019, from
https://www.axios.com/toys-r-us-babies-r-us-market-amazon-target-walmart-c80246ba-
7de3-4cc1-98d3-e5dc1ec859b3.html

4. Vijay, G. & Anil, K.G., 2002, Taking Wal-Mart Global: Lessons From Retailing’s Giant,
viewed 14 May 2019, from https://www.strategy-
business.com/article/13866?gko=203b4

5. Jessica, B. & Courtney, R., 2019, Walmart upgrades its baby registry, hoping to woo new
parents, and keep their business, viewed 8 May 2019, from
https://www.cnbc.com/2019/04/03/walmart-upgrades-its-baby-registry-hoping-to-woo-
new-parents.html

6. Lauren, T., 2019, Walmart isn’t the only retailer already winning in 2019, viewed 12
May 2019, from
https://www.cnbc.com/2018/12/31/here-are-some-of-the-winners-in-retail-heading-into-
2019-like-walmart.html

7. Lauren, T., 2019, Walmart’s battle with Amazon has new fronts: Digital ads and A.I.,
viewed 17 May 2019, from
https://www.cnbc.com/2019/05/16/from-advertising-to-ai-walmart-is-doing-a-lot-more-
than-retail.html

8. Deborah, W., 2018, Walmart and Target Are Set To Be The Big Winners From Toys ‘R’
Us Closures, viewed 12 May 2019, from
https://www.forbes.com/sites/deborahweinswig/2018/03/26/walmart-and-target-are-set-
to-be-the-big-winners-from-toysrus-closures/#69d92fc499df

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