Welcome to the world of predatory pricing

It has been alleged that the phenomenon of ‘predatory pricing’ is evident in many modern industries. Predatory Pricing is when a company monopolises an industry and unilaterally sets the price for the services or products in that sector. It is alleged that the phenomenon is slowly gaining strength in the areas of e-commerce, call taxi and telecom. Predatory pricing eliminates natural competition in the market.

The process of predatory pricing, the situation that controls the market, arises through the following process: A large company enters the market and then delivers goods or services at a lower rate than the currently exists. Smaller companies are forced to close down as they are unable to keep pace with the market and face competition from large companies. This leads to the loss of employment opportunities provided by small companies. With this, only the big company can dominate the market. As a result, the company raises prices to a higher level than previously offered by smaller companies. Consumers have to buy goods or services at high prices as there is no other way.

There are strong allegations that predatory pricing exists in areas such as e-commerce, call taxi and telecom. Months ago, allegations surfaced that predatory pricing was being carried out against e-commerce giant Amazon. The government has warned that it will take action against the company. The government has made it clear that e-commerce companies have no right to lower the prices of their products and to harm retailers through predatory pricing. The warning comes after complaints were received that e-commerce companies were violating the guidelines. As a result, Amazon and Flipkart had to withdraw several offers.

Predatory pricing in service areas such as call taxi has been widely accused of destroying the employment and business opportunities of ordinary taxi drivers and small taxi service providers. The advent of Uber and Ola led to a decline in the standard taxi services in the market. Uber and Ola slowly began to raise the minimum rates initially offered to customers. Complaints of non-availability of call taxi service at the required time and place have spread among the customers in the metro cities.

Recent trends in the telecom sector are an example of predatory pricing. In 2016, there were about a dozen companies operating in the telecom sector. Within a few years, it had shrunk to just two-thirds. This was due to the arrival of Reliance Jio.

Reliance Jio’s entry into the market was purely strategic. Reliance Jio, which revolutionised the telecom services sector, was the first to offer one GB of data for free every month and free data-based calls. There were widespread doubts as to how successful the experiment would be in attracting customers and whether the experiment would significantly affect the progress of the telecom business itself. The question arose as to how a venture with an investment of Rs. 3.5 lakh crore could be made profitable through such experiments. However, the experiment of Jio to attract customers of other telecom operators to themselves and to create a wider base of customers has been very successful.

Reliance Jio, which entered the market in 2016 as a threat to other telecom companies, has rapidly dominated the market. It took only three years to become the number one telecom company in terms of number of subscribers. As on May 31, 2020, Reliance Jio had 39.2 crore subscribers. Vodafone and Bharti Airtel lost 47 lakh subscribers in May alone, while Geo gained 37 lakh new subscribers that month.

Prepare a new facility for the customers for free or at a low cost, slowly make the use of that facility a habit, bring the customers into the company’s influence as soon as the habit becomes unavoidable. Start charging them adequately, and slowly elevate the experiment to profitability. Geo has been offering free service till March 31, 2017, after which it has been charging for services. Later the rate gradually increased. What Geo is doing now is to pay for the habit instilled in consumers by the proliferation of 4G data interaction and social media. Last December, telecom companies raised the prices of their packages significantly.

Predatory pricing is imposed on consumers in many ways. Even banks do this. For example, in the past, banks did not charge for ATM / debit cards. It was a free service that came with the opening of a Savings Bank account. But today, consumers are often unaware that banks charge for cards. Only by looking at the bank statement will you know that the banks charge from the account every year.

These companies are preparing a variant of the English proverb, “There is no free lunch.” Give free lunch first, then turn those who are addicted to the taste of lunch into their regular customers. This is the modern business strategy. In the meantime, there may be a shrewd business strategy that charges, including for the free lunch provided.