Collective action and Walmart

As we enter the holiday season, many of us will inevitably find ourselves in a big-box retail store to satisfy our consumer wants and needs. One of the top destinations across America will be Walmart, the largest retailer in the world. Walmart’s questionable business practices are well documented; these range from labor issues — providing extremely low wages, locking in retail employees, purchasing from foreign suppliers that abuse human rights, and more — to community issues, such as the fact that competing local stores will often go out of business.

Many acknowledge these issues, but ultimately conclude that Walmart is a normative good, as it is what the people want. Yet this logic is fundamentally flawed, due to the economics of the multi-person prisoner’s dilemma (if you are unfamiliar with the prisoner’s dilemma, I suggest briefly glancing at the Wikipedia page for a quick introduction). One example of a multi-person prisoner’s dilemma involves conservation: If there is a water shortage, everyone should conserve water. But if everyone conserves water, there is no need for you (one individual) to conserve water. Since everyone else has the same incentive to defect, it is everyone’s individual best interest to not conserve water. And once no one conserves water, it is futile for you to attempt to conserve water.

In applying this analysis to Walmart, I will make four assumptions. The first is that a person gets one point of utility for shopping at a downtown retail store, while he gets two points of utility for shopping at a Walmart on the outskirts of town. Walmart offers a combination of low prices and diverse products, which for many shoppers outweighs the fact that local stores often offer superior customer service. The second assumption is that a person derives two points of utility from the existence of a vibrant downtown retail sector, regardless of how often he consumes there. For middle and upper-class communities, this appears reasonable (think of how much one saves by shopping at Walmart versus how much one would pay to live near a vibrant downtown). Although the above utility payoffs are purely hypothetical, they may be relatively accurate at a rough level for certain groups of people.

The third assumption is that person B is representative of all the other townspeople: If person B decides to shop at Walmart, many Main Street retail stores will shut down (yet if he shirks Walmart, Walmart will remain open due to business from neighboring towns). Studies have shown that the success of Walmart is inversely proportional to the success of local retail stores, so this assumption makes sense as well. The final assumption is that person A’s decision has no bearing on what person B decides.

Given these assumptions, we would have the decision matrix as shown below, where (X,Y) is the payoff to person A and each of the townspeople, respectively:

Person A’s dominant strategy is to shop at Walmart, as no matter what person B decides, person A is better off adopting that strategy. All the townspeople, though, are faced with this same decision matrix; they will all at some point be person A, deciding whether it is in their best interests to shop at Walmart. If each has the same payoff schedule, then the outcome is clear: Everyone will defect and shop at Walmart, even though collectively this fails to maximize net utility. The utility maximizing outcome would be semi-restraint, or just enough people shopping on Main Street to keep the downtown vibrant. Given the free-rider problem, though, this outcome is far from guaranteed. The next best outcome, then, is for no one to shop at Walmart.

In essence, this has become a collective action problem. Individually, people are best off with a Walmart that no one but them frequents. But since everyone has this incentive to free-ride, collective action is necessary if we want to maximize the community’s utility. Relevant collective action strategies include boycotts of existing Walmarts, shaming people who shop at Walmart despite having little economic need, and rallying municipal governments to oppose the development of new Walmarts.

This piece is not meant to provide a conclusive empirical analysis of why we should oppose the existence of Walmarts. Rather, it attempts to show how an action that is in the best interests of the individual can be sub-optimal when viewed on a collective level. It is a popular saying that “since everyone shops at X, X must be good for the community.” The realities of the multi-person prisoner’s dilemma, however, question the validity of this logic.

What are your consumption plans for this holiday season? Let Adam know at 

About Adam Johnson

Adam is a senior from Illinois. He is majoring in Biomechanical Engineering, although his intellectual interests span dozens of departments. This is his second year writing for the Daily (you may remember him from his work last year on the Editorial Board). Outside of writing, Adam enjoys acting, skiing, making music, and thrift-store shopping.
  • very good

    Excellent piece. There are so many reasons to give up consumerism. More broadly, the type of simple (which is a virtue) utility analysis you present here applies to a lot of modern dilemmas.

    I’d like to follow up on your analysis by making more explicit the aspect of transitions in time. I’ll refer to states by box number, with 1,1 upper left. At one time, we were in state 2,2. Now an individual is in 1,1 or 2,1. How did we get to these states? First, we passed through 1,2, which is the maximum-utility state. How can we get back to 2,2? A good many people must pass through state 2,1, the minimum-utility state. Hence it’s far easier to go from good to bad than from bad to good. I think this asymmetry in transitions applies to a lot of real-world problems and perhaps is fundamental to why these problems are so hard to solve.

  • Peter McDonald

    Wow, way to use game theory to provide an argument for organization and not just as a rationalism for capitalism. I’m serious. Nice work.

  • Alvin

    This is completely flawed reasoning. There are no Prisoner’s Dilemma (PD), collective action, or free-rider issues with the Walmart example in your column. They’re simply not applicable here. You’re trying to fit a square peg into a round hole. (And it’s not always the case that competing local stores go out of business when a Walmart opens up nearby…sometimes the competing local store obtains more customers from the influx of people driving to Walmart. “Hey, I didn’t notice that local store until Walmart gave me a reason to drive over here.”) (Nor is it true that Walmart pays less than the unionized stores or uses cheap foreign labor that competitors do not – and who cares if they do. As a consumer, I’m interested in the best deals.)
    There is no PD issue when an individual makes a self-interested decision that maximizes his goals/pursuits/utility without harm to others.
    Colletive action problems exist when costs of private or individual organization or action are prohibitive, like assembling land to build a public highway. It’s easier for the government, exercising its eminent domain and other power, to do so.
    Free-rider is not applicable either. FR problems arise when the action of one or more individuals benefit a third party who made no contribution. Normally it’s not a problem in the privat sphere, but is a problem with government functions. Imagine if taxes to pay for police or military protection were voluntary. A lot of people would not pay, but they would benefit (or free-ride) off those who do.
    The problem with a vibrant downtown has more to do with zoning regulations and other land-use restrictions that drive out many businesses, not Walmart’s presence.
    In my opinion, it will be a beautiful day when the Palo Alto Town & Country Village is torn down and a Super Walmart is allowed to build in its place.