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Wal Mart Trial on Predatory Pricing Essay

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Wal-Mart Stores Inc. and its pricing practices went on trial in an Arkansas courtroom, where three independent pharmacies are trying to prove that the nation’s largest retailer sold merchandise below its costs in an effort to drive competitors out of business. The retail druggists in Conway, Ark., north of Little Rock, contend that their business suffered from Wal-Mart’s “predatory prices” on items ranging from toothpaste to mouthwash to over-the-counter drugs sold at its Conway superstore. The pharmacies charged that Wal-Mart violated the Arkansas Unfair Practices Act, which forbids selling merchandise below cost “for the purpose of injuring competitors and destroying competition.” They are seeking $1.1 million in damages. In court papers, Wal-Mart has acknowledged selling some products for less than they cost, but insists that the policy has not damaged competition in the Conway area. “It would be better if you could make a profit on everything you sell, but in the real world, that isn’t possible,” David Glass, Wal-Mart’s president and chief executive, testified in Faulkner County Chancery Court in Conway.

“That’s the principal reason why we do it.” Ripple Effect Expected. But Dwayne Goode, owner of American Drugs Inc. of Conway, one of the stores that filed the civil suit in 1991, testified that he shopped at Wal-Mart for certain merchandise for his store because it was cheaper than wholesale prices. He said Wal-Mart’s pricing had a “very negative effect” on his pharmacy and that he had lost customers. The trial is being watched by retailing analysts and trade associations, who say a decision against Wal-Mart could have ripple effects for other retailers that price aggressively.

“It would set a major retailing precedent that other companies would have to stand and fight against,” said John R. Lawrence of Principal/Eppler Guerin & Turner Inc. in Dallas. “As the company continues to get bigger and takes market share away from others, there are always going to be people attacking them more and more,” Mr. Lawrence added. “They are a very tough negotiator in buying, and have strong cost containment and a sophisticated distribution network. It gives them an advantage.” * Wal-Mart insisted that selling at a price below cost is one of their strategies to grow and survive, but is it ethical? * Did the Wal-Mart commit unfair business competition practices? What are they? * Were the complainants have rights to sue Wal-Mart?

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