“The bargaining power of both suppliers and customers is a crucial factor in understanding the competitive dynamics of any industry” / Michael Porter
The Federal Economic Competition Commission (COFECE) has hit retail giant Walmart Mexico with a fine for monopolistic practices. Although the company defends itself and claims that the practices in question are common in the market, the situation forces us to ask: where is the line between what is common and what is unfair?
Let us remember that COFECE, as an independent body, has the responsibility of ensuring competition in the market. Its decision to fine Walmart suggests that there is evidence of practices that distort competition, affecting suppliers and, ultimately, consumers.
THE CASE OF RETURNS: SALE OR CONSIGNMENT?
One of the points that has generated controversy is the practice of forcing suppliers to accept returns of unsold products. While it is true that many large retailers use this type of contract, known as "vendor", the reality is that they blur the figure of the buyer.
Let's imagine the situation: you are a small producer looking to break into the big leagues and sell your products at Walmart. Your bargaining power is limited, and to access this important distribution channel, you are forced to sign a contract where you agree to accept returns if your product does not sell. In practice, this means that you assume the risk of the sale, as if it were a consignment.
WHY IS THIS A PROBLEM?
It creates an imbalance, because that there is a clear asymmetry in the commercial relationship, where the supplier is in a disadvantageous position.
The supplier assumes the risk, that the product does not sell, affecting its cash flow and profitability.
The aforementioned practice can lead to abuse by the buyer, such as the return of products in poor condition or the generation of unjustified returns.
A CALL FOR CONTRACTUAL JUSTICE
Although this type of "vendor" is common in the commercial sector, it does not mean that it is fair or legal. The Federal Law on Economic Competition (LFCE) seeks to prevent monopolistic practices and promote competition. A contract with abusive clauses that affect free competition could be considered an anti-competitive practice.
It is crucial that suppliers know their rights and negotiate fair terms.
If abusive practices are detected, they can go to COFECE (or the new competent authority) to file a complaint.
The case of Walmart Mexico invites us to reflect on the importance of a fair and competitive market.
While efficiency and low prices are important, they should not come at the cost of exploiting suppliers.
A solid regulatory framework is needed to protect small and medium-sized businesses and promote more equitable trade relations.
MARKET FORCES
Although there are two market forces that can "suffocate" small and medium-sized suppliers ( the bargaining power of the buyer, such as Walmart , and the bargaining power of the supplier ), unfortunately an additional force appears here : "The Power of the Mexican State" , where the current administration, instead of protecting, will make small and medium-sized suppliers more vulnerable, due to the disappearance of COFECE and the transfer of its functions to the Ministry of Economy.
It is essential that the new authority maintains independence and the ability to enforce the law, ensuring a market where all players, large and small, have the opportunity to compete on equal terms.
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