KEY POINTS:

• Last week, Union Commerce Minister Piyush Goyal assured action against Amazon and Flipkart if the two companies are found guilty of the practice.
• While Amazon and Flipkart say they have complied with the government rules, local trader groups say the two companies are violating them by burning money to offer discounts during the ongoing festive sales.
• The govt introduced new rules in February to protect the 130 million people dependent on small-scale retail by deterring big online discounts.

A Rs 2,199 watch available for Rs 247. An air purifier worth Rs 32,995 for Rs 23,999. Branded shoes at 60-80 per cent off, and an inverter worth Rs 9,995 at Rs 4,499. The Diwali sales offered by e-commerce giants Amazon and Flipkart draw thousands of breathless customers looking to score sweet deals on a whole range of essentials as well as indulgences. 

The same deals have now brought the companies under the government’s scanner over alleged “predatory pricing”, a controversial business practice where a player offers massive discounts to mitigate competition.

“E-commerce companies have no right to offer discounts or adopt predatory prices. Selling products cheaper and resulting the retail sector to incur losses is not allowed,”  Goyal was quoted as saying. 

What is predatory pricing?

Both follow the marketplace model of e-commerce, which means they connect sellers and buyers instead of selling their own wares. This is the only type of e-commerce where foreign investment is allowed in India. 

Under FDI rules that kicked in this February, they are also barred from striking contracts with private companies for exclusive sales of certain items, for example, the OnePlus-Amazon partnership, and offering discounts.

Before the new FDI rules took effect, these platforms were accused of  buying products in bulk from manufacturers at heavy discounts, and then selling them at lower costs to entities where they had a stake. These entities would then reportedly sell these products on the e-commerce platforms at lower costs.

Costs were allegedly brought down further by waiving the delivery fee and via cashbacks, often on their own payment portals like Amazon Pay.

Since such practices are seen as inimical to the functioning of brick-and-mortar stores, the new FDI guidelines barred e-commerce entities from “directly or indirectly” influencing the price of goods and services.

 

 The whole stunt of massive discounts is usually adopted when a vendor wants to push slow moving items or wants to rapidly grow their audience and dethrone competitors. If you notice, all their massive sales last for not more than a day or a few days (Flash sales), which helps them push goods at a much faster rate and cater to a much larger audience within a short span of time.

These sites have a bottomless pit of cash to fall back on, so they can afford to sell most of the items even if it means a loss. That loss is considered an investment towards new customer acquisition, expansion to other cities and regions and thus market share.

Another reason they can afford to do this is, they are not an offline retailer, thus save on store investments/maintenance, which gives them much higher margins on each product/category. However, this can be debated as they have heavy investments in real estate and offices/maintenance.

From my point of view, In fact they are cheaters, there is no discount at all they sell same price what you get in local market And many products are not what they look like in photos. I have seen many live examples of Amazon and Flipkart frauds, like:-One of my friend purchased one high end laptop online from Amazon (Dell Inspiron 5570). Transaction was done on advance payment by Debit Card. Since he had problem from day of 1st use, he investigated and found the following :

• The laptop was a locally assembled by Dell India from Scrap windows 8 bought in lots. Only Mother Board was procured as OEM and it was sold as new one.
• The fraudulant activities was carried out by Amazon India in connivance with Dell India 
• The GST INVOICE Of NIL was done showing as replacement supply 
• No DCOA sticker (DELL CERTIFICATION OF AUTHENTICATION) attached . hence no Royalty was paid to US.

FOR MORE INFORMATION YOU CAN GO AND CHECK THIS LINK GIVEN BELOW:

https://www.business-standard.com/article/economy-policy/amazon-flipkart-may-feel-the-pinch-after-govt-bars-exclusive-deals-118122600873_1.html