Learn From A&P

Law and policy matters for innovation. Sometimes it matters by promoting innovation, and someday I hope we’ll have better intellectual property rights to better promote innovation. But today, and for much of history, law and policy has mattered mostly by hindering innovation. For example:

In a new book, Levinson explains how local mom-and-pop stores — with their limited selections, high prices and nonstandard packaging — paved the way for national chains like the A&P to swoop in and dominate the grocery industry. … “People get misty-eyed at the thought of the independent store — maybe it had some unique product, maybe we had more choices than we have today — but the truth was exactly the opposite.” ….

A&P … opened its first small grocery store in 1912. Unlike traditional mom-and-pop stores, the A&P had no telephone, no credit lines and no delivery options. They also had lower prices. .. “It stocked only items that were fast-sellers. … It had limited hours. It had a single employee. … Within eight years, this approach turned their company into the largest retailer in the world.” … Controlling both the retail store and the supply chain gave the A&P a huge advantage over corner grocery stores because the A&P could run the factories at a lower cost. In addition, the A&P started to bypass wholesalers and go directly to distributors for various products. …

Competitors were not happy. Efforts to limit chain stores grew in the 1920s, when states and localities began passing laws designed to help independent merchants. … “Now, you’ve got these gigantic companies like A&P dominating retailing and wholesaling and not leaving a chance for the average guy. That was the basis of the complaint.”

State laws were passed to force manufacturers to sell to all stores at the same price and to tax merchants with multiple stores in a case. An antitrust suit was also filed against the A&P, claiming that it had become a food monopoly because it controlled all aspects of manufacturing, retailing and wholesaling. But the movement lost steam in the late 1930s, when the economy started to pick up. (more)

A&P introduced major innovations, and was punished for it by the regulatory system. For now, law and policy can most help innovation by getting more out of the way. Whether it will actually do so, however, is far from obvious.

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  • wophugus

    A&P would have been totally impossible without a variety of beneficial regulatory programs (IE, regulations on crime, the ability to breach contracts, etc). Which bits of our legal regime hurt it and which helped it are up for debate, but it was clearly helped more than hurt. It’s existence was a triumph of good law and government,slightly hindered by bad law and government.

    • Anonymous

      You’re probably right in that some regulation is optimal for a buisness to survive- that does not refute the case that significantly less regulation would be optimal than exists at the moment.

  • mike

    Sorry, I am as Libertarian as they come, but I am going to have to disagree with you on this one. A&P didn’t lose out to Congress or to mom-and-pop stores, they lost to even larger and cheaper grocery chains, as a result of their inability to evolve in response to societal changes in America.

    A&P’s business model was optimized for a time when populations were concentrated in city centers, when people would walk a few blocks to the nearest grocery store and carry their groceries home. However, with the proliferation of the automobile, which led to the suburbanization of America, and home refrigeration, which allowed for larger, less frequent purchases of groceries, came the rise of the supermarket; people could now drive great distances to regional stores, and transport their larger grocery loads home in their cars, thus rendering smaller inner city stores like A&P largely obsolete.

    Further, regional supermarkets could afford to sell at lower prices, as larger stores in smaller numbers decreased shipping cost for suppliers, and larger, less frequent shopping trips allowed for lower staffing levels. As a result, chains like Kroger and Safeway, which were far quicker to capitalize on these demographic changes, beat A&P at their own game.

    Business are like living creatures – when the environment changes, they either evolve or go extinct.

    Source: Thomas Sowell, Basic Economics – great book!

    • magicdufflepud

      You complete missed the point of this post.

      The point was not that regulation resulted in A&P’s demise; it’s that when A&P’s innovation gave it a competitive edge over mom and pop shops, state and local legislators enacted regulation to combat that innovation.

      • magicdufflepud

        Err… “completely.”

        But I should have been nicer and said, “It seems like you’ve missed the point.”

  • Khoth

    For now, law and policy can most help innovation by getting more out of the way. Whether it will actually do so, however, is far from obvious.

    Does that mean that until the new forms of beneficial IP rights you want are actually developed, you favour the government getting out of the way of innovation regulation and dropping patents entirely?

  • http://contrarianmoderate.wordpress.com Ben

    A&P introduced major innovations, and was punished for it by the regulatory system. For now, law and policy can most help innovation by getting more out of the way.

    I realize this is a topic you’ve posted about previously, but in a vacuum this reads as: “Datum implies general rule”.

  • anonymous

    This post is written as if readers were expected to be familiar with A&P, and indeed the company is described in its Wikipedia article as an “American icon”.

    …but, despite the fact that it is apparently still operating, I had never heard of this company in my life!

    I’ve always thought I had a pretty good grasp of American history, and knew what the important features of previous eras were. But how much other information about the past has been lost? What other “American icons” am I completely ignorant of?

    • John Maxwell IV

      Eh, they’re mostly on the east coast. They also operate under a bunch of different banners, most of which don’t have A&P in the name.

      Piggly Wiggly (PW) was also rather innovative: http://en.wikipedia.org/wiki/Piggly_Wiggly

  • Marcus

    *sigh*

    The moneyed set want their feudalism back. Employees of big companies…. so much more efficient! Hurray!

  • steve

    I think this may be an exception to the rule. My understanding is that most regulation benefits large competitors at the expense of smaller ones. And, when I mean “benefit”, I don’t mean it doesn’t cost them time and money. I just mean they have the economies of scale to make the regulations an annoyance as opposed to the insurmountable roadblock that the small competitor faces.

  • Thomas Bartscher

    So, what again was the big innovation, that makes A&P so desirable? I don’t understand, the end user doesn’t seem to benefit at all.