What Should We Think About Chain Stores?

Art Carden,

Release Date
September 13, 2011


Free Markets and Capitalism

Are chain stores good or bad? According to Prof. Art Carden, there are reasons to both like and dislike chain stores. The reasons to like chain stores include their ability to lower prices, increase variety, and reduce uncertainty. However, chain stores also do things to dislike, such as pursuing special government privileges like subsidies and eminent domain.
Essentially, when chain stores respond to the incentives of the market, they create wealth for society. On the other hand, when chains stores respond to the incentives of the political process, they often produce detrimental effects for society.

What Should We Think About Chain Stores?
What should we think about chain stores? Are they good? Are they bad? A lot of people have different opinions. There are good and bad reasons to like, and good and bad reasons to dislike chain stores. There are three really good reasons to love chain stores.
First, they lower prices. Stuff gets cheaper because of chain stores. They lower prices by providing competitive pressure. They innovate, first of all, so they’re able to lower their own costs. Then they put pressure on other firms to lower their costs. This lowers prices.
Second, they increase variety. We have access to more stuff because of chain stores. One argument against chains is that they reduce the diversity of the human experience. Memphis, for example, is much more similar to Washington, DC, now, or much more similar to New York, in part because you can eat at any variety of chain restaurants, you can shop at chain stories. But within Memphis itself, the variety of different types of cuisine and the array of goods that can be enjoyed is much, much larger than it would be in the absence of chains in modern economic growth.
Third, they reduce uncertainty. When you go to a chain store, you know what you‘re going to get. When you go to a chain restaurant, the food might not be great, but at least you often know what you going to get. If one store in the chain offends you, then the entire chain might lose business. This provides a very, very powerful incentive to provide you with what you want, when you want it, where you want it.
There’s some good reasons to dislike chain stores as well. Chains do a lot of good in response to the incentives provided by the market. Chains do a lot of bad, however, in response to the incentives provided by the political system.
Sometimes chain stores get government subsidies, both directly and indirectly, perhaps in the form of sweetheart tax deals and also in the form of eminent domain. Sometimes they literally seize houses or they seize businesses and turn it into, for example, perhaps a shopping center that’s filled up with chain stores. It might be good for the local governments because they get tax revenue. It’s bad, however, for the displaced businesses and the displaced homeowners who would have preferred to stay where they were.
Capitalism is about choice. Government intervention is the use of force. When a business uses government subsidies and eminent domain to run its business, that’s not capitalism. That’s not the free market. That’s stealing. A wise man once said, “Don’t hate the player, hate the game.” The game that chains are playing is a response to both market incentives and political incentives. When they’re responding to market incentives, they’re creating wealth. They’re making us all better off. When they’re responding to political incentives, however, they’re reducing wealth and they’re making us all worse off. The solution, however, is probably not to fight the chains as such, but to look for the source of the political incentive that they’re using to make us worse off.