Price parity clauses (read as restaurants are not free to price their products differently on the two platforms) ensure that Zomato and Swiggy do not have to compete with each other to lower the cut-throat commissions that they charge restaurants. (File Image)
New DelhiJan 13, 2025 15:57 IST First published on: Jan 13, 2025 at 15:57 IST
“By directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for the society that it was no part of it.”
Scottish economist Adam Smith, in his seminal work Wealth of Nations (1776), coined the term “the invisible hand” as a metaphor to describe how the otherwise opposing forces of self-interest and competition can lead to unintentional outcomes that benefit society as a whole. This principle laid the foundation for modern free-market capitalist thought and the laissez-faire economic policy that influences it as we know it today.
For said gains to be realised, the invisible hand theory takes two variables for granted in tandem: Self-interest and competition. Lose one and the whole tapestry comes apart. Self-interest is the easier of the two to preserve. Humans are not altruistic (or so we are told) after all, sparing exceptional circumstances. Centuries of trade and the wealth of commercial history that comes with it have shown us that the other variable, competition or a fair, level playing field for all parties involved is incredibly hard to maintain because when self-interest is left unchecked by healthy competition, it necessarily propels the economic system to the singularity of a monopoly; an outcome that is terrible for all the participants in the system, customers and merchants alike.
It is through this lens that we must look at the hue and cry that the National Restaurant Association of India (NRAI) is making over Zomato and Swiggy launching Bistro and Snacc respectively — apps that are insidiously but surely making restaurant partners unfairly compete with the very digital platforms that they exist on. This all but confirms what the restaurant fraternity has known for a long time now. Zomato and Swiggy are coming for their lunch.
A marketplace actively competing in the market itself is not necessarily a bad thing in theory, since restaurants can just switch to another marketplace that does not. That they meaningfully cannot, is key here. We have reached a reality where Zomato and Swiggy constitute a duopoly with a whopping 95 per cent combined share of the online food delivery market.
Price parity clauses (read as restaurants are not free to price their products differently on the two platforms) ensure that Zomato and Swiggy do not have to compete with each other to lower the cut-throat commissions that they charge restaurants; all they have to do is mirror each other because there is no competitive third, leading to a cartel like behaviour that raises prices for everyone.
Restaurants that can and do have the capability to deliver their food better, faster and cheaper (and pass on these savings to the customers) are not allowed to, as these platforms bundle the delivery service along with the listing on the platform. You have to take both, or have none. This greatly reduces competition in the delivery logistics sector leading to a stagnation in innovation there, suboptimal wealth creation for the riders that deliver the food and the obscene exploitation of gig workers.
Deep discounting on these platforms leads to the long tail effect of price distortion to a customer who thinks that they are getting a great deal. The very construct of the language of discounts is designed to shock and awe into consumption rather than actually deliver monetary savings.
This abuse of dominance as the restaurant fraternity will testify to, is the flesh and bones of NRAI’s petition to the Competition Commission of India (CCI) in 2021. While the investigation is yet to be concluded, the CCI in its wisdom rightly recognised highly problematic behaviour on the part of the two platforms in its initial findings. This would include barring Zomato and Swiggy from starting their own private labels (Bistro and Snacc) given their dominant position in the market, since all they would need to do is funnel all the customer data that they deprive restaurant partners of, towards their own/preferred labels within the app or to their subsidiaries.
When Amazon started selling its own brands on the platform, self-preferencing against the interests of other sellers and thrashing the very notion of a level playing field, it was the CCI that brought them to heel.
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It is not just the small businesses and the swathes of restaurant workers that they employ (a number second only to agriculture) who bear the brunt of brute force monopolistic behaviour from these digital platforms. For customers, the long-term effects necessarily include higher prices (high operating costs will inevitably be passed on), lower choice (good luck trying to buy a usable smartphone that is not based on iOS or Android) and a suboptimal customer experience (unhappy, overworked gig workers have absolutely no incentive to excel and delight).
The invisible hand has some very visible handcuffs slapped on its wrists right now, it is the need of the hour that the regulatory powers step forward and unshackle them.
The writer is co-founder of Mahabelly, a restaurant serving Kerala cuisine and Joint Secretary, NRAI (National Restaurant Association of India) overseeing its interests in E-Commerce Policy, Online Ordering & Logistics
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