- Wealth PMS (50L+)
Who doesn’t love to get a bargain – we all love to buy things cheaper than what we are presented with. Stores organize discount festivals announcing big bargains and while we very well know that the shopkeeper is no fool to sell at a loss, we still are enthused by the bargain we are getting.
Anti Trust rules in the United States or the Competition Act 2002 which replaced The Monopolistic Trade Practice Act 1969 were written to ensure that companies didn’t band up to hike prices for the public. Unbridled Competition which lowers prices for the end customer has always been looked upon favorably.
In India, Reliance Jio has shaken up the Telecom market like nothing we have seen or experienced earlier. India is now thanks to Jio the largest country in the world in terms of mobile data consumption. High speed Mobile data which was expensive and sparingly used is now used to watch movies by the common man on the street.
Vanguard was till recently the low cost fund house in the United States. With Fidelity now launching zero fees on its ETF’s, it has snatched this crown. But Vanguard did this without actually taking in mammoth amount of losses or cross subsidizing but instead used technology and a share structure to ensure the benefits reached its investors.
When Reliance Jio, Amazon or Flipkart provide cut throat prices, they aren’t selling at low profits. Instead, they are willing to lose money on every sale with the anticipation that in the long term they can sell products or experiences that can generate revenue.
Reliance Jio for example through parent Reliance owns 20 news channels and 37 entertainment channels. In addition, it has tie up’s with major content producers to ensure that their customers can get access to complete entertainment.
The emergence of Netflix / Amazon Prime among other online content providers have started to make the cable a thing of the past in the West. While its definitely nowhere close to a winner takes it all market, the choices actually start getting restricted as those who cannot compete start to go out of business.
In the world of Indian Telecom, we are seeing the same with most small players quitting the scene. Even Idea and Vodafone have now merged their operations to see if coming together can help them fight better. They too are suffering with huge debts that require massive dose of equity to be injected just for survival.
While Reliance Jio claims to be profitable, its structure is totally dependent on the investments that are being made by Reliance which thanks to its refinery business can keep throwing out cash like no other business can. In other words, Reliance Jio can keep prices incredibly low for its aim is not making money out of data or telecom but by providing the user with other services that can generate revenue thanks to economies of scale.
This week’s good read is a Essay by Lina M.Khan which was published nearly 18 months ago, its starting to gain attention at higher levels of government which for long has ignored the risks of big tech and one brought out to the front by the Cambridge Analytica episode at Facebook.
Monopolies are bad because they mean that the consumer ends up paying more than what the product or service is worth paying. Most monopolies are created by way of government interventions in sectors where it wants to retain a influence.
But when companies are able to become a monopoly while at the same time ensuing that the end consumer is paying less than what he may have ended paying, is it necessarily a bad thing?
Companies like Amazon / Flipkart / Ola / Swiggy / Uber have all disrupted the old way of doing things and in the process of generating revenue have also generated thousands of job opportunities. But most of those opportunities are low paying jobs with little future for the employee since even this shall tend to get disrupted.
The stock brokerage industry was terribly inefficient and was dying even before the arrival of Zerodha and other discount brokers. PSU Banks are another inefficient capital allocator’s who are able to survive only thanks to government handout’s and if RBI every relaxes the rules and allows easier ways for anyone with adequate capital to start a bank, most PSU Banks too will go down the way Regional Stock Exchanges went after the arrival of National Stock Exchange.
Competition is good but when one company starts to accumulate power across industries, it starts to become scary. Lina Khan’s paper has evoked considerable reactions on both sides of the fence.
“The long-term interests of consumers include product quality, variety and innovation — factors best promoted through both a robust competitive process and open markets,” she wrote.
Its a long paper yet a very thoughtful one. It will be a long time before Amazon or Flipkart can dominate retail to the extent they do in US, but Reliance is moving in a way that can be the Amazon of India before long and one with even greater powers.
Its interesting to see Google advertise on Indian Television channels asking viewers to check price of the product they want to buy on Google versus checking the same on Amazon or Flipkart. In US, its said that more than 50% of the search now happens within Amazon. Google for one seems to avoid the same replicating in India.
Go, Read: Amazon’s Antitrust Paradox