Monday, October 30, 2006

Wal-Mart Bank?

We have been talking in class about firms entering markets. Sometimes firms can enter and leave without ever having any real impact on the market. However, sometimes when a firm enters or leaves a market, the effects can ripple throughout the entire market, changing everything.

I have recently learned that Wal-Mart is trying to establish a bank, or buy one, whichever comes first. I find this interesting because the idea of a Wal-Mart back is very appealing to me, a poor college student. Wal-Mart says that its bank, should it come to fruition, would be aimed at lower income individuals, many of whom do not currently have a bank account.

Here is the problem with this Wal-Mart Bank. If they start lowering the prices of financial services, it could possibly have a large effect on the market for financial services as a whole. By selling under the market price, it could drive the price down to a point where some firms can no longer stay in business. So my question is: would a Wal-Mart Bank be a good thing or a bad thing for the financial services market?


MalloryH said...

I actually find this very interesting. It seems that wal-mart has a tendacy of lowering prices so much, its not always a good thing. With the low prices of their stores they often push smaller businesses out. And now with the idea of a bank which sells under market price, they will push out other banks. I don't necissarily see this as being a good thing.

Keith Zeigler said...

I agree that a future Wal-Mart bank may be a bad idea for the financial services market. Just as Mallory said, Wal-Mart has a way of lowering their prices almost too much below the market price. Already in many locations, where a Wal-Mart goes into business, many smaller retail stores are forced to close their doors because the giant retail store drives them out of business. It would only seem to follow that the same would happen in the finacial services market. Wal-Mart needs to simply stick with what they do best already, and that is selling retail goods are low prices.

Greg Delemeester said...

I am amazed at the pummeling that Walmart is getting from you people. So what if small businesses are forced to close? How can consumers argue with the lower prices and wider selection that Walmart brings to a community? Wouldn't you want to pay lower prices for your financial services? Wouldn't you want to pay lower prices for your prescription medicines? Think of it this way: the small businesses that are forced to close are now free to enter some other line of business where they might put their resources to better use.