22nd August 2024 (11 Topics)
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E-Commerce, A Double-Edged Sword
Context
The digital age of online shopping (which has become the norm), has brought countless benefits for the consumers, it has also impacted traditional retailers and the broader economy. The functioning of the E-commerce sector is eating into the small retailers (12 million kirana stores) by giving heavy discounts on products (predatory pricing).
What is Predatory Pricing?
- Predatory pricing is a strategy where a company sets prices below cost to drive competitors out of the market.
- Once the competition is eliminated, the company can raise prices to recoup losses and achieve higher profits.
- This strategy poses challenges to small retailers and raises questions about market fairness and competition.
Impact on Small Retailers
- Price Competition: E-commerce platforms often offer deep discounts and promotions that small retailers cannot match due to limited resources and higher operating costs. This aggressive pricing strategy can force small retailers to lower their prices unsustainably or exit the market.
- Customer Attrition: Consumers attracted by lower prices on e-commerce sites may shift their spending away from local retailers, reducing their customer base and revenue.
- Job Losses: As small retailers struggle or close down, there can be significant job losses in local communities. Small retail businesses are often major employers, and their decline can impact employment rates.
- Economic Drain: Small retailers contribute to the local economy through taxes and local spending. Their closure can reduce local economic activity and tax revenue.
- Community Erosion: Small retail shops often play a crucial role in community life, providing personalized services and contributing to the local character of neighborhoods. Their decline can erode community cohesion and character.
The earning gap
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Required Measures
- Antitrust and Competition Laws: Many countries have antitrust and competition laws designed to prevent monopolistic practices and ensure a level playing field. Regulatory bodies may investigate and address cases of predatory pricing if it is deemed to harm competition and consumer welfare.
- Subsidies and Grants: Governments can provide financial support to small retailers through subsidies, grants, or low-interest loans to help them compete with e-commerce platforms.
- Digital Transformation: Encouraging small retailers to embrace digital technologies can help them compete more effectively with e-commerce platforms. Initiatives to enhance digital literacy and provide e-commerce training can be beneficial.
- There is need to help onboard kirana stores on the central government's Open Network for Digital Commerce (ONDC) network, helping them compete with e-commerce and quick service grocery retailers. ONDC is a freely accessible and inclusive platform that aims to democratise e-commerce.
Fact Box:
Factors responsible for growth:
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