Opinion Tread carefully
As battlelines sharpen between traditional and online retail, government would do well not to wade in.
Online retail giant Flipkart has been receiving flak from consumers and commentators for the many glitches in the conduct of what was billed as India’s largest online sale. Consumers are complaining that the retail giant has taken the customer for granted. Some consumer goods companies are accusing it of predatory pricing and threatening legal action. Many of these issues can be remedied through courts, as they are contractual issues. However, the government has also waded in, saying it will look into the concerns of traders regarding the steep discounts on offer. Government intervention on disputes between brick-and-mortar companies and e-commerce platforms, however, is best avoided.
E-commerce platforms have emerged as one of the breakthrough innovations of the last decade. They are challenging traditional brick-and-mortar stores aggressively with better services, more options, cheaper goods. Many physical stores are therefore becoming uncompetitive or losing business. Unsurprisingly, several such companies in India have reacted to the threat, not by innovating, but by seeking government intervention. It is worth considering what the nature of government intervention in such a situation would be. The stepping in of government can arguably be justified from two perspectives — consumer protection and competition. On the former, the government would be justified in acting to protect the interests of consumers if they have been wrongly treated/ cheated during their online transaction. In such a situation, the government has a legitimate role in ensuring a clear legal framework that protects consumers from such experiences.
The other paradigm of government intervention is more problematic. Complaints of “predatory pricing” essentially pertain to a market player trying to unfairly influence consumers and therefore being uncompetitive. This is an issue of competition law, and there is a Competition Commission to look into such matters. If government over-intervenes, it could become protectionist in favour of brick-and-mortar stores, and consequently prevent the process of creative destruction that is a natural feature of any business. Critically, more competition also benefits consumers as they get an increased variety of options and services to choose from. Perhaps the best example of this is the development of the telecom sector, where competition has lowered prices and increased access to telecommunication services. Many developed countries leave such issues to the competition regulator, which has the specific expertise to look into issues of predatory pricing. The Central government must be wary, therefore, of intervening in this case.
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