PREDATORY PRICING - AN ANALYSIS - Jaisveen Kaur Kohli

-

Intro, definition, and legalities:

Predatory Pricing is the practice of employing below-cost pricing to undercut competitors in order to gain an unfair market advantage. In this method, the seller reduces its price to which other sellers cannot compete and are eventually pushed out of the market. Jio's initial pricing policy acts as a glimpse of predatory pricing strategy where it successfully reduced players in the market and established a competitive advantage to become the largest mobile network operator of India.  

As per the Competition Act 2002, any abuse of the dominant position by a company in terms of partaking in unfair practices in the market is forbidden. This includes the application of predatory pricing to eliminate competition and increase market share. Currently, there has been no evidence to proclaim these discounting strategies like predatory pricing since no monopoly has been formed and the companies have not been entirely successful in wiping out the major competition from the market. 

Current Scenario:

There have been several reports of e-commerce companies like Amazon, Udaan, and Reliance JioMart being involved in using unfair trade practices including deep discounting, preferential selling, and predatory pricing to maximize their market share to establish their monopoly in the market. The direct impact of such activities is borne by the traditional retailers and distributors of the country. E-commerce companies have been indulging in these activities to the extent that they have reduced the price level to below production costs leading to overall losses of more than Rs. 5000 crores. These losses are then absorbed by the VCs backing the e-commerce companies. This problem is not restricted to the FMCG sector but was also experienced by newspapers, Telecom, and Hospitality Industries. Although these strategies offer the perk of increasing the market share and, sometimes, establishing a monopoly, however, in the long run, the lucrativeness of high profits can reel in the potential entrants leading to surging competitiveness. 

In addition to this, various distributors have reported that the manufacturers follow a differential pricing policy for online and offline distribution. The disparity in prices recently escalated to the level where some distributors boycotted HUL and have stopped supplying its products as a sign of protest. Due to unfair margins offered by the manufacturers, the All-India Consumer Products Distributors Federation (AICPDF) has approached Prime Minister's Office and Commerce & Industry Minister. To resolve this, the Competition Commission of India (CCI) has initiated a study of e-commerce practices, and the Department for Promotion of Industry and Internal Trade (DPIIT) under the Ministry of Commerce has planned to frame a policy to lay down rules and guidelines for the e-commerce industry. The Confederation of All India Traders (CAIT) also sent across the word that nonadherence to fair trade practices will result in the closing down of the businesses of traders. 


Factors contributing to the implementation of Predatory Pricing:

• The market conditions and market structure help in determining the level of competition in the market which acts as one of the prime factors contributing to the strategies formulated by the companies 

• Barriers to entry and exit decide whether the company using predatory pricing strategy would be able to increase its share and assert dominance in the market

• Favorable expansion capacity and high efficiency are crucial for the firm due to the rising demand from consumers owing to reduced prices

Impact on Economy and Businesses:

• The predatory pricing and deep discounting strategies lead to reduced operations of MSMEs resulting in huge losses and shutdown of business in some cases

• The differential pricing policies of manufacturers for the brick-and-mortar retailers and offline distributors can contribute to widening the income and wealth gaps in the nation

• This can also cause a diminishing domestic trade and a wave of unemployment

• After succeeding in maximizing their share in the market, these companies tend to aim for profit maximization by drastically increasing the price levels resulting in the exploitation of consumers 


Comments

Post a Comment

Popular posts from this blog

A REGULATORY NIGHTMARE IN CRYPTO - Bhanu Sripada

-
Image
With governments growing unstable and citizens losing trust in sovereign national currencies, cryptocurrencies offer a universally accepted peer-to-peer transaction solution, which was the original intended purpose of bitcoin. Furthermore, they can be customized based on the application to suit the purpose. Governments and central banks are now trying to come forward with their own cryptocurrencies. This begs the question of the ability of governments to scan the nooks and crannies of this neo currency frontier for illegal activities, and if cryptocurrencies would usher in a peer-to-peer revolution, a new era of financing of crime or terrorism or both.    According to various research papers and articles published (even by the IMF and The New York Times), Bitcoin was a perfect medium of exchange for illicit activities on the dark web where the users could get away with using Bitcoin as a currency, as it is near impossible to trace it back to them. Close to one-half of Bitcoin ...
Read more

Balancing Act: Addressing India's Growing Credit-Deposit Gap and Its Financial Implications - Vansh Aggarwal

-
Image
  Balancing Act: Addressing India's Growing Credit-Deposit Gap and Its Financial Implications The growing disparity between credit and deposit growth in India's banking sector is indeed a significant issue with potential implications for liquidity, financial stability, and the broader economy. This divergence—where credit growth has outpaced deposit growth—can be traced to several interconnected economic, regulatory, and behavioural factors, and understanding them is key to addressing the potential risks posed by this trend.  1. Money Creation Process and the Expected Correlation  In theory, when a bank extends a loan, it simultaneously creates a deposit, since the borrower’s account is credited with the loan amount. This is how the banking system expands the money supply. However, the current situation in India reflects a break in this expected relationship, as the loan growth exceeds deposit growth. As of October 2024, bank loan growth in India stood at 12.8% year-over-...
Read more

Reviving India's Manufacturing Sector: Government Incentives as a Game-Changer - Raghav Modani

-
Image
  Reviving India's Manufacturing Sector: Government Incentives as a Game-Changer India has experienced the fastest growth rate among emerging economies, driven by its service sector and increasing consumer demand. However, the manufacturing sector, considered a crucial driver of long-term growth, remains largely underdeveloped. Currently, Indian manufacturing employs only 11% of the workforce and its contribution to the country’s GDP has remained stagnant. This contrasts sharply with other growing economies like Vietnam and China, where manufacturing significantly contributes to economic growth.  To give a scale of comparison, China, recognized as the "factory of the world," contributes 28.7% to global manufacturing output, supported by a well-established ecosystem with advanced infrastructure, extensive supply chains, and economies of scale. Manufacturing accounts for 27% of China's GDP, driven by strong government policies, investment in industrial parks, and a focu...
Read more