Monopoly vs Competition

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Context:

  • The US government and 48 states and territories have sued Facebook for illegally crushing competition, and are seeking to break up the company by overturning its acquisitions of Instagram and WhatsApp. 
  • The US Federal Trade Commission (FTC)’s lawsuit accused Facebook of eliminating competition with the acquisitions- even though the FTC itself had approved the deals.
  • Facebook’s 2012 acquisition of Instagram for $1 billion and the 2014 acquisition of WhatsApp for $19 billion are being cited as attempts to illegally eliminate competition.

Relevance:

  • Prelims: Current events of national and international importance
  • Mains: GS-III-
    • Economy
    • Awareness in fields of IT, Space, Computers, Robotics, Nanotechnology, Biotechnology
    • Role of media & social networking sites in internal security challenges
    • Basics of cybersecurity

What is the Difference between Monopoly and Competition?

Monopoly Competition
There is only one firm that dictates the price and supply levels of goods and services, and that firm has total market control. The market is composed of many firms, where no one firm has market control.
Here firms are price makers because they control the prices of goods and services. Firms in a perfectly competitive market are all price takers because no one firm has enough market control.
Prices are generally high for goods and services because firms have total control of the market. Prices are dictated by supply and demand.
It generally involves a single seller, and buyers do not have a choice concerning where to purchase their goods or services. Such a market has many buyers and sellers, and consumers can choose where they buy their goods and services.
The non-existence of seller cartelSeller cartel is present Seller cartel is present.
Can play with the quality of the product sold in the market to the buyers In perfect competition, each seller is selling identical products in the market, so they have to maintain their distinct quality.

Purely monopolistic markets are extremely rare and perhaps even impossible in the absence of absolute barriers to entry, such as a ban on competition or sole possession of all-natural resources.

Monopolistic competition in India

A case study of Reliance Jio:

  • Jio Platforms is the parent company of Reliance Jio and is the telecoms and digital arm of the Indian conglomerate Reliance Industries Limited (RIL).
  • Its strategy of predatory pricing, use of money power, and influence in the current administration has set it on the path of gaining a monopoly. Predatory pricing has helped it gain 389 million subscribers in just four years.
  • Jio disrupted the industry by launching free 4G services for the first six months, followed by ultra-low-cost services and later greatly subsidized JioPhone. There was no action against Jio for offering below-cost tariffs, and it pushed the industry towards consolidation.
  • It is now just three private telcos – Jio, Airtel and Vodafone Idea and one government-owned telco, BSNL or MTNL, depending on the location. Out of these, Vodafone Idea is in a precarious position and might be forced to wind up operations. This has shown signs of a duopoly in the Telecom Sector.
  • Further adding to the anxiety of its rivals, Airtel and Vodafone Idea, Jio hopes to dominate several areas and is not simply focused on connectivity.
  • It almost seems the company wants to be a part of every step of the consumer journey, from devices to apps to connectivity to developing new use cases.
  • Jio has announced its intention of becoming a global 5G vendor.
  • It's collaborating with Google on an Android-based operating system and developing affordable devices. Jio is also likely to work with Facebook on a “super app” with several functionalities.
  • Jio's recent deals with Internet giants Facebook and Google have raised several questions.
  • The recent ban covering 59 Chinese apps, including Tiktok, UC Web and Shareit, can only help Jio-Facebook combined dominate India's digital ecosystem. 
  • While Jio might have competitors in different segments, like Airtel in connectivity, or smartphone makers in devices, it doesn't really have a direct counterpart – and that could adversely impact the country's entire digital ecosystem.
  • There's no doubt that Jio's entry helped make mobile broadband accessible to the vast majority in India. The number of consumers, and the data consumption per user, has gone up significantly since launch.
  • Even so, a monopoly will hardly be in India's best interest.

 

Market Structure in a real-world
  • The situation of monopoly or perfect competition is not seen in the real world. As per law private monopoly is not allowed. Only a monopoly by the government exists.
  • Nowadays the market is flooded with so many varieties of the same product that perfect competition in a real sense also does not exist.
  • Take the example of “soap” –a product meant for taking bath or washing hands. Under perfect competition, it is expected that only one type of soap will be sold by many sellers. But in reality, we have different brands of soaps available in the market and sold by different firms such as Lux, Dove, Liril, Godrej, Nim, Mysore Sandal, Johnsons, Hamam, Dettol, Lifebuoy etc. These are all used for the same purpose i.e. taking bath. But they are different in terms of colour, packaging, fragrance etc.
  • All these sellers also incur heavy expenditure on the advertisement to sell their kind of soap. Contrary to perfect competition where there are many sellers selling a single product without an advertisement, in this case, there are many sellers selling different variations of a particular product.
  • So we cannot say that this type of market is perfectly competitive. This type of market is called monopolistic or imperfect competition.
Perfect Competition in India

Perfect competition means a situation where there are a huge number of players in a market and the price of the final product cannot be decided by any single player.  

The customer gets to benefit at every step, as the prices cannot be very steep, anyway.

Case study-The organized retail industry

  • The biggest player is Big Bazaar and is totally unfazed by the competition even from Amazon.com, which has entered the grocery space too. Since customers get a huge variety of goods in one place, at cheap prices, this is the biggest player.
  • However, the Kirana shops that offer convenience and the personal touch, in some many residential localities are playing catching up. Their personalized equations help a great deal in customizing products for individual customers. For example, if a customer demands the best quality red chillies from Guntur, the Kirana guy can get it fast and ensure the best quality too. Vegetables at 5 AM, for example, are fresh and very good too.
  • The prices are more or less the same as what is there in the Reliance Fresh, More and Big Bazaar outlets.
  • Big Bazaar has already eaten up smaller retail chains like Nilgiris of South India.
  • However, the individual customer is always spoiled for choice in this perfect competition market, where the differentiation between products is very less indeed.
  • For example, even the smaller supermarkets, with lower overheads in terms of wages, are also stocking branded plastic items, at prices that match the Big Bazaar and the other players. So, the perfect competition helps them too.
How does the Facebook monopoly affect the users?
  • The dangers of these aggressive monopolies are not confined to the competitors — users also suffer because of fewer options and weaker privacy controls. Both WhatsApp and Facebook have eroded the privacy protections that they earlier promised, by changing the terms of service communicated through long and complicated messages that most users simply do not read.
  • All these companies hoard the data they collect, which increasingly covers all aspects of their users’ lives. For many of them, data are now the biggest source of revenues and profits.
  • Data is used in marketing and targeted advertising, influencing and manipulating political outcomes, targeting individuals based on particular criteria, enabling surveillance by both governments and private agencies.
  • Since the issue is not just about market and its competition, but also about privacy, more regulation is clearly required, in addition to the lawsuits.
Concerns for India
  • All this has direct relevance for India, and not only because these companies are so important in India. But because:
    • More than 400 million of WhatsApp’s estimated 2 billion users are in India;
    • Amazon has around one-third of the share of online retail in India, 
    • India is Facebook’s largest single market, with around 270 million accounts;
    • Google completely dominates the search engine space in India, and most smartphones in India are Android-based.
    • And now Facebook and Google are collaborating with India’s largest telecom company — Reliance Jio owned by Mukesh Ambani — to create a single gateway for Indians providing everything from information, news media and entertainment to daily purchases of groceries and sundry other services.
  • Also, India still does not have a privacy law, even though the Supreme Court declared privacy to be a fundamental right some time ago. Even the proposed Bill is extremely weak without adequate safeguards.
  • It is time for Indians to wake up and realise that anti-trust regulation and public control over digital companies- including home-grown ones- have become critical for them.

Role of Competition Commission of India
  • Competition Commission of India is a statutory body of the Government of India responsible for enforcing The Competition Act, 2002 and promoting competition throughout India and to prevent activities that have an appreciable adverse effect on competition in India. 
  • CCI consists of a Chairperson and 6 Members appointed by the Central Government.
  • The Commission is also required to give an opinion on competition issues on a reference received from a statutory authority established under any law and to undertake competition advocacy, create public awareness and impart training on competition issues.
  • The Competition Commission is India’s competition regulator and an antitrust watchdog for smaller organizations that are unable to defend themselves against large corporations.
  • CCI has the authority to notify organizations that sell to India if it feels they may be negatively influencing competition in India’s domestic market.
  • A foreign company seeking entry into India through an acquisition or merger will have to abide by the country’s competition laws.
  • It has intervened in instances like:
    • Imposed a fine of ₹63.07 billion on 11 cement companies for cartelisation in June 2012. It claimed that cement companies met regularly to fix prices, control market share and hold back supply which earned them illegal profits.
    • Imposed a fine of ₹10 million upon Google in 2014 for failure to comply with the directions given by the Director-General (DG) seeking information and documents.
    • Ordered an antitrust probe against Google for abusing its dominant position with Android to block market rivals. This probe was ordered on the basis of the analysis of a similar case in the EU where Google was found guilty and fined.
Conclusion
  • With new avenues of technology and economy opening up, we need to tackle challenges like these effectively. Efforts at the national level can come through effective bodies like Competition Commission of India.
  • There is a growing realisation about the disproportionate clout that these technology platforms have in the global scheme of things, which they exploit to further their domination in the industry. 
  • And it would be useful for governments and regulators to draw the right lessons from this in order to keep the spirit of competition alive.



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