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India’s Bad Idea – More E-Commerce Restrictions To Hit Flipkart And Amazon

We know why this is being done of course, these new restrictions upon e-commerce in India, it’s to stop Flipkart and Amazon from competing too, too, directly with the local firms and also with the bricks and mortar retailers in the country. The bureaucrats and the politicians see it as their duty to do this, to make sure that the more inefficient retailers aren’t riven out of business by the better and newer systems. Unfortunately, for everyone except the people who own those retailers this is an extremely bad idea. It makes everyone poorer to protect the livings of those few retailers. What actually should be happening is competition red in tooth and claw and may the best win, foreign, domestic or whatever.

For the aim and purpose of our having an economy is so that the average person is better off. It isn’t – or it shouldn’t be – about protecting producers but about laying the ground rules which allow the consumer to be as well off as they can be. That does mean that we want the most efficient producers to dominate. Yea even to the level that they drive the less efficient out of business, out of the marketplace:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The Indian government is playing the role of festive party pooper for Walmart and Amazon after it announced new regulations that look set to impede the U.S. duo’s efforts to grow their businesses in India.[/perfectpullquote]

So, what are they doing? They’re placing restrictions upon what those companies may do. Some restrictions are obviously just fine – don’t act illegally, pay your taxes, don’t kill the customers, all those sorts of things. But what is actually being done is that the two companies, the Walmart owned Flipkart and Amazon, cannot do what their specific structures enable them to do. They’re not being allowed to use their advantages in that competitive marketplace that is and that’s not the point at all:

[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The three main takeaways from the new policy, which will go live on February 1, are a ban on exclusive sales, the outlawing of retailers selling products on platforms they count as investors, and restrictions on discounts and cashback.[/perfectpullquote]

The two companies are large enough that it could make sense for them to organise exclusive sales – and they do. Sense both to the platform and also to the original manufacturer. Given that both parties think this just fine then why does the bureaucracy intervene? Because, so the thought is, other, smaller, companies can’t do this therefore no one should be allowed to do it. But that’s to miss how markets work. If someone does have an advantage then we want them to use it. We want there to be an uneven playing field as long as the advantages come from legal activity. For if everyone does use their advantages then that’s exactly how the consumer gets the best deal.

The same is true of the other two restrictions. Consumers are made better off by the two major platforms doing this so we’d like them to do it. Other retailers, those competing, wouldn’t like it. But that’s the error in the administrative thinking, they’re thinking that the aim of the regulation is to protect the competitors when it should in fact be consumer oriented.

Sure, stop Amazon and Flipkart from doing things which harm consumers. But not what harms other retailers. For the entire point of a competitive market is that people do deploy their advantages so as to favour consumers and to the disbenefit of other producers. These restrictions, as with so many others in India, should go.

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5 years ago

And the government continues to profit from the tax on the final price, which would be more now!

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