Predatory pricing involves selling goods or services at a price lower than their cost of production.
On Wednesday, Minister of Commerce and Industry Piyush Goyal raised the issue of “predatory pricing” by e-commerce platforms and the possibility of “social disruption” as their rapid growth could adversely impact millions of small retailers across the country. E-commerce platforms in India have been in the regulatory glare for some time now. In 2020, the Competition Commission of India (CCI) had initiated an investigation against Amazon and Flipkart over allegations of deep discounting and the practice of preferred sellers. Allegations of predatory pricing were also levied against e-commerce firm Shopee and taxi aggregator Ola, subsequently dismissed by the Competition Commission.
Predatory pricing involves selling goods or services at a price lower than their cost of production. This is an anti-competitive practice that works to the disadvantage of the firm’s existing competitors and also dissuades prospective new entrants in the market segment. Driving out competitors could result in the creation of a monopoly-like market structure. While consumers benefit in the short-term via lower prices, the long-term consequences are less market competition, less choice for buyers, and the possibility of the dominant firm later raising prices to the detriment of consumers. However, considering the dynamics of online pricing, the cost structures of these platforms and the advantages that economies of scale tend to offer, determining if a firm has engaged in predatory pricing is not a straightforward exercise. Moreover, even brick and mortar stores often offer huge discounts to clear their stock. The report by the Pahle India Foundation, at the launch of which Goyal made the comments, presents data that counters some of the charges that have been levied against such platforms. As per the report, while e-commerce is indeed growing at a fast pace, it comprised only 7.8 per cent of total retail sales in 2022. The report estimates that around 1.76 million retail enterprises take part in e-commerce activity in India, with the online vendors generating 15.8 million jobs, including 3.5 million for women. A significant share of e-commerce vendors surveyed in the report said that their sales and profits have increased after they started selling online. Integration with such platforms has, in fact, delivered benefits to vendors in smaller cities. Contrary to oft-repeated claims, the report finds that the growth of this segment is “not at the cost” of the traditional brick and mortar stores. Not only do consumers feel they have more choice, but they also feel that pricing is in their favour.
The e-commerce market in India is a fast growing segment. With more and more consumers and businesses onboarding such platforms, the Competition Commission should ensure that firms do not indulge in unfair practices, that there is fair play and a level playing field. There should be greater transparency in pricing and lesser information asymmetry. Policy should be guided by the objective of safeguarding competition.
