Anushruti Singh
In recent years, the rapid growth of e-commerce has transformed the retail landscape, offering consumers the convenience of shopping from the comfort of their homes, often at lower prices than traditional brick-and-mortar stores. However, this convenience comes at a cost, particularly for small retailers who find themselves struggling to compete with the pricing strategies of large e-commerce platforms. One of the most contentious issues in this space is predatory pricing, a practice that has drawn sharp criticism from trade organisations and government officials alike.
What is predatory pricing?
Predatory pricing refers to the strategy where a company sets its prices significantly lower than those of its competitors, often below the cost of production, with the intention of driving those competitors out of the market. Once the competition is eliminated or weakened, the company can then raise prices to recoup losses and gain monopoly power. While this tactic is commonly associated with traditional business sectors, it has found new life in the e-commerce world, where major online platforms have been accused of using deep discounts to undermine smaller retailers.
Impact on small retailers
Small retailers are particularly vulnerable to predatory pricing because they typically operate with thinner margins and have less flexibility to absorb losses. When large e-commerce platforms offer products at heavily discounted rates, it creates a price disparity that small businesses simply cannot match. For instance, a product that a small retailer sells for ₹500 might be available on an e-commerce site for ₹350, making it nearly impossible for the retailer to compete. As a result, many small businesses are forced to either lower their prices, often to unsustainable levels, or face the risk of going out of business altogether.
This issue is not just about economics; it’s about the survival of small businesses that form the backbone of local economies. These businesses provide employment, contribute to the local tax base, and offer personalised services that large e-commerce platforms cannot. The loss of small retailers could lead to a decline in community vibrancy and economic diversity, resulting in a less competitive marketplace overall.
Concerns raised by trade organisations and government officials
The issue of predatory pricing in e-commerce has been a longstanding concern for trade organisations such as the Confederation of All India Traders (CAIT). These groups argue that e-commerce giants are not playing by the same rules as traditional retailers, exploiting loopholes to offer unsustainable discounts that are driving small businesses out of the market.
Recently, Piyush Goyal, India’s Minister of Commerce and Industry, echoed these concerns during the launch of a report on the net impact of e-commerce on employment and consumer welfare in India. Goyal highlighted the uneven playing field created by e-commerce platforms, stating that they are “eating into the small retailers” by focusing on high-margin products. He noted that while consumers may benefit from lower prices in the short term, the long-term effects could be detrimental to the retail sector as a whole.
Goyal also questioned the social implications of the rapid expansion of e-commerce, warning that it could lead to significant social disruption if left unchecked. He called for the sector to be more organised and for measures to be put in place to ensure that all players operate on a level playing field.
Need for regulation and fair competition
As the e-commerce sector continues to grow, it is crucial to address the challenges posed by predatory pricing. Ensuring fair competition requires a combination of regulatory oversight, better enforcement of existing laws, and perhaps new legislation that specifically targets unfair pricing practices in the digital marketplace. This would help to protect small retailers and ensure that the benefits of e-commerce growth are shared more equitably across the economy.
In conclusion, while e-commerce has undoubtedly brought many benefits to consumers, it is essential to consider the broader implications of predatory pricing. By addressing these concerns, policymakers can help to create a more balanced and sustainable retail environment that supports both online and offline businesses.
