Walmart, Massmart and the benefits of competition

Walmart's proposed acquisition of Massmart has been met with howls of fury across many sectors of civil society. The unions are worried about jobs losses, suppliers are worried about the international chain's ability to source product more cheaply offshore, and local retailers are worried about increased competitive pressure. Many of these parties were hoping that the Competition Commission would serve as the first line of defence against Walmart, and have been sadly disappointed by the Commission's recent decision to recommend the merger.

What has been lacking from the public debate so far has been an understanding of who will benefit from the merger (and no, its not just Walmart and Massmart). The public relations problem that pro-competitive mergers typically face is that they have focused negative effects on groups of people who are well-organised and likely to be very vocal, such as competitors and labour unions. The positive effects they have, conversely, are very widely dispersed across people who may not even be aware that they are benefiting, and are poorly placed to lobby to support their interests - in other words, everyone who buys goods from the retail sector in South Africa.

Take for example this quote from Whitey Basson of Shoprite, arguing against the entry of Walmart: "If there is blood on the floor, we will have no choice but to retaliate." From the point of view of the consumer, this is very good news indeed - Shoprite seems to be signalling that we may soon see a price war in the retail sector, which will likely result in lower prices and better service levels for all of us. And the cheaper groceries become, the fewer families sit below the breadline, and the more money people have to spend on things like school fees and healthcare. To put it differently, a cheaper cost of living has a non-trivial effect on the ability of people to sustain an acceptable standard of living and claw their way out of poverty.

Much of the criticism of the merger has to date been coming from those who have a commercial interest in reducing the competition that their firms will face, and thus should be taken with a pinch of salt. And even if some negative effects are felt, we should not lose sight of the larger picture - and in the larger picture, the merger will almost certainly be of net benefit to the country as a whole.