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Thread: Limiting business growth - a good idea?

  1. #1
    Cyburbian Cardinal's avatar
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    Limiting business growth - a good idea?

    I came across this short article from Bllomberg:

    By Maria Kolesnikova

    Dec. 30 (Bloomberg) -- Russian President Dmitry Medvedev has signed a law to limit the expansion of retail chains, a measure lawmakers said will promote cheaper prices for customers.

    The law, published today in the official bulletin Rossiyskaya Gazeta, takes effect Feb. 1.

    Chains with more than 25 percent of their sales in a particular region will be banned from acquiring additional retailing space, according to the regulation.

    Those operating nationwide will be subject to the restrictions as of Feb. 1. For chains operating in a certain city or a municipal district, including Moscow and St. Petersburg, the law will take effect as of July 1.
    As a person who strongly believes in markets, I found myself loving this idea. Although it is sold here as a measure to promote cheaper prices for consumers, I think it does much more. It is essentially promoting Ben Franklin's idea of a nation of small shopkeepers (although a 25% share is much more than Franklin envisioned). A market with many competitors creates competition, fosters innovation, and does a more effective job of ensuring distribution of wealth through business ownership or better wages. The idea itself is not new and we have had anti-monopoly laws on our books for a century. Still, this is something unique in that it takes it down to the local level. I would like to see something similar discussed in this country.
    Anyone want to adopt a dog?

  2. #2
    Cyburbian ColoGI's avatar
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    Quote Originally posted by Cardinal View post
    I came across this short article from Bllomberg:

    By Maria Kolesnikova



    As a person who strongly believes in markets, I found myself loving this idea. Although it is sold here as a measure to promote cheaper prices for consumers, I think it does much more. It is essentially promoting Ben Franklin's idea of a nation of small shopkeepers (although a 25% share is much more than Franklin envisioned). A market with many competitors creates competition, fosters innovation, and does a more effective job of ensuring distribution of wealth through business ownership or better wages. The idea itself is not new and we have had anti-monopoly laws on our books for a century. Still, this is something unique in that it takes it down to the local level. I would like to see something similar discussed in this country.
    Corporations control this country. As in the dream of Jeffersonian yeoman farmers going away, this is a non-starter as small shopkeepers have gone away as well, alas.

  3. #3
    Except in isolated rural areas with a Wal Mart, does any place have a retail establishment that has more than 25% of the market? This is sort of a silly law for most places. What would be the "area"? The metro area? County? State? Neighborhood (and how would you define a neighborhood?

    If you don't want to shop in a chain store, don't. If you do, shop there. Let the market decide (and I thought I was far out on the left wing fringe).

    Do we really want to take market regulation ideas from Russia?

  4. #4
    Cyburbian JimPlans's avatar
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    Unenforceable?

    This seems unenforceable to me. Imagine where I used to live in New England, about 15 years ago. No Wal-Marts that I knew of, no Target either, a retail environment populated by stores such as Lechmere, Caldor, Child World, Ames (previously Zayre's, previously Kings), and Bradlees.

    Then stores like Wal-Mart and Target start to encroach, and one-by-one the regional chains fail. The regionals failed because they couldn't match the prices and selection that Wal-Mart and Target were charging. It didn't matter that these new stores didn't have much of the market at first, because once they were available to consumers it was all over. The established stores couldn't sell enough to cover their costs and stay in business.

    How would the Russian regulation handle this near-certain eventuality? One or two store chains that are just better than the others, or other store chains that are poorly managed and can't compete. If Wal-Mart moved into the Pskov Oblast (for example) and started underselling local stores, how far would local government go to limit it? Would they limit the hours that the Wal_Mart could be open? Would they give ration coupons to citizens only allowing them to buy a certain amount of goods there?

    What happens to the retail space that is left vacant because one chain puts another chain out of business? Would a third chain move in and compete? Is there even another chain that could compete? Does the space just remain vacant?

    This policy is based on there being multiple chains of stores, all with equal chances of success. This is just not a true reading of how markets work. Sooner or later there will be a successful store that puts profit pressure on all the others, and some of those others will go bankrupt. At best, this policy will create four large retail chains, each with a protected market and with no need for improvement in price, service, or quality of goods. It benefits business owners, not consumers.

  5. #5
    Cyburbian
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    To start, the Russian alternative does the opposite of promoting cheaper prices. While it is a common misconception that competition will promote cheaper prices, that usually isn't the case. The type of competition that lowers prices doesn't exist in most markets here in the US. Prices tend to gravitate to where everyone makes a reasonable profit and they tend to hold there. You don't find that one guy anymore who will lower their prices to try to out sell the competition. That type of free market doesn't exist anymore.

    Again in the US, Walmart can undersell any competitor because of its sheer size. It forces down the wholesale prices of its vendors by telling them that they may get lower per unit profit, but they will get a whole lot more lower per unit profit over an extended period of time. That is the prevailing type of retail economy that exists in the US today. :Larger retailers like Walmart, Target, Costco and others sell for less because they are (1) getting better prices on wholesale due to volume, (2) are very efficient in the way they run their operations consistently from store to store and (3) are non-union and generally do not pay benefits except for a minimal number of necessary full time employees. I don't necessarily agree that this good for US consumers, but it is the reality of retail market economics today.

    It is my guess that the Russians who don't get the chain stores will pay higher prices, have to buy inferior goods and have shortages due to poor management. Unfortunately Russian politicians, like those in the US, don't study or try to understand market economics as they really are and not as we wish they would be. Your statements represent what is often called by economists as a "Jeffersonian-ideal". Unfortunately, Jefferson's ideal died about as long ago has he did.

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