Cost of unjust competitors: Government has to be cautious of predatory rates by e-commerce

ecommerce, ecommerce industry, economy E-commerce is a-billion industry in India, and is projected to grow to 0 billion by 2026(inning accordance with the

India Brand Equity Foundation). The government just recently released the draft e-commerce policy, which tries to control and manage deep discounting by e-commerce gamers. While the structure of the draft has actually been criticised in some quarters, there is no rejecting that there is an immediate requirement for an e-commerce policy. Policy is needed as price distortions would have broad implications for the industry and the economy as a whole. We are seeing other industries, such as telecom, bleeding due to predatory rates and the result might not become advantageous for the consumers, too. In the airline market, for example, we hear voices that question whether really low rates can be sustained, and whether it is healthy for that sector.E-commerce is a$38-billion industry in India, and is predicted to grow to $200 billion by 2026(according to the India Brand Equity Structure). India is one the fastest growing e-commerce markets internationally. In India, e-commerce retail sales make up just about 2.9%of overall retail sales, however the share is expected to grow dramatically as the internet use boosts. In fact, e-commerce has gotten prominence globally. The sector is being discussed in multilateral forums like WTO, G20 and OECD, and is also being taken up in trade agreements such as the TPP and the RCEP. India has actually so far revealed issues in participating in e-commerce discussion at the WTO. A thoroughly crafted e-commerce policy will make it possible for the federal government to take a stand in worldwide negotiations.Coming back to the problem of deep discounting/predatory prices by large e-commerce gamers, predatory pricing

is specified as an intentional technique, typically by a dominant firm, of driving rivals from the market by setting very low prices or selling below the firm’s average variable expense. It makes customers more vulnerable as they handle a monopoly/near-monopoly circumstance. E-commerce players are able to cost beautifully compared with brick-and-mortar companies as they conserve on leasings and inventory cost(in case of a market design, an e-commerce company does not preserve inventory but only provides a platform for buyers and sellers ). Apart from their organisation design which provides them cost advantage, many e-commerce gamers are able to sell inexpensive merely since they have actually received a large amount of financial investments from private equity or endeavor capital funds. This financing enables them to sustain a design of deep discounting, which other players in the market may discover difficult to sustain.Even e-commerce business may not have the ability to sustain deep discounting as the financing dries up. While deep discounting is advantageous for the customer in the short term, it could be damaging in the long run as it cleans out other gamers from the market. The dominant player enjoying predatory rates could then increase rates to recoup the past losses, and consumers will not have much choice. Predatory rates by e-commerce gamers is a worldwide phenomenon. In China, we saw the war in between Uber and Didi Chuxing play out, which ended with Uber lastly offering its Chinese arm to Didi, which then dramatically raised taxi fares to the detriment of last consumers. The European Commission in 2015 concluded an e-commerce sector inquiry, highlighting the prospective competitors issues. In the United States, Amazon is often blamed for predatory pricing. But the company escapes antitrust examination by the United States regulator as it can argue that it’s not in a dominant position in any of the services. Developing breach of antitrust law is a complicated exercise globally and there are no easy options. Deep discounting by e-commerce gamers is a global phenomenon. The difference is that in industrialized markets the retail industry is currently developed and hence is in a much better position to take on cost competition from e-commerce gamers, but in India both the organised retail industry and e-commerce are at a nascent stage.The guidelines for FDI in e-commerce sector(2016) state that e-commerce entities providing market will not straight or indirectly affect the price of goods or services and shall maintain a level-playing field. In addition, it mentions that an e-commerce entity will not permit more than 25%sales on its market from one supplier. This was supposed to protect brick-and-mortar stores from rate disturbances by e-commerce gamers. However, these rules are being prevented as numerous e-commerce gamers are affecting the rate through their favored sellers.The government needs to take a balanced method in its e-commerce policy solution. It is vital to supply all the assistance to e-commerce, which is helping flourish start-ups and providing a platform to SMEs.

However, at the very same time, there might be a concentration risk with increasing reliance of SMEs on a couple of huge e-commerce players. The federal government needs to watch out for monopsony powers (meaning pricing power of the single purchaser ). There is risk that a couple of huge e-commerce players can lower rates at which they procure from little businesses.The e-commerce market has to be developed on a sustainable organisation model. Short-term rate cutting can damage long-term interests of gamers and customers. The federal government has to have policies in location to prevent rate distortion. This is very important not simply for the sustenance of the e-commerce industry however also of other markets that are directly or indirectly exposed to this sector. E-commerce is going to grow into a substantial industry with ramifications for general consumption, production, employment in the economy, which makes all of it the more crucial to have the ideal business model and the necessary policy in place.

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