Bigness Game of Marketplaces

What do consumers look for ?

Best ‘value for money’ spent – does this mean better choices or do they only want to save money – which is important – but do they look at long term benefits in terms of getting quality and improvement while comparing product choices?

What do Retailers or producers offer?

The best choice in terms of quality and price. They want to sell and create a brand image so that they create a customer base which comes back to them. Its not always pure price competition. For instance, even indian & chinese smartphone makers like Micromax and Oneplus care about quality – they are buying Patents to be in tune with cutting edge technology even as they sell low price products.

What do the marketplaces have to offer?

They seem to be in the monopoly game. Last decade, Amazon Vs. Hachette set up the first example in the online marketplace.

In 2009, when Amazon accounted for as much as 90 percent of the U.S. e-book market. At the time, Amazon was selling the most popular e-books for less than $10 which was below its buying price of about $13.

The publishers anticipated that Amazon would eventually pressure them to lower their wholesale prices to undercut competitors, squeezing suppliers.

So, the 5 major publishing houses came up with a plan that would have given them more negotiating power —they agreed with Apple on an “agency model” that would let them set retail prices and give Apple, or any other seller, a percentage. That would have sustained them, encouraged competition on the e-books platform without killing the offline retail business — to the benefit of publishers, other technology companies, and, ultimately, consumers.

The plan backfired: The U.S. government filed an anti-trust case against Apple and the publishers for conspiring to restrain competition. (The five publishers settled the case; the court ruled against Apple, which has appealed.) But although the publishers may have violated the law, the case ended up helping Amazon dominate the book market.

Why did an anti-trust case help give Amazon the kind of market power that anti-trust law is designed to prevent?. There is a difference in approach of the US and EU Competition Authorities…

Amazon’s price parity clause had been unpopular right from its introduction in Europe in 2010. Amazon had argued that it was essential if its customers were to feel confident that they weren’t missing out on cheaper prices elsewhere, but Marketplace traders—who number a staggering two million around the world—felt it was restrictive.

In contrast to the US position – Their case was picked up by regulatory bodies, first in Germany and then in the UK, where the Office of Fair Trading started an inquiry into whether the clause was anti-competitive. It is likely that with the investigations closing in, Amazon saw the writing on the wall and pulled its clause voluntarily, and before it was forced to do so.

The outcome is a relief for Marketplace sellers like small traders and other online retailers, who will now be free to price as they like on Amazon, their own websites and anywhere else. One of those is FirstyFish, Firsty’s eBookstore for publishers and that offers lots of flexibility in selling to consumers.

Publishers might also be encouraged to sell their print and digital content direct to consumers on more competitive terms. They may not be inclined to offer prices as low as Amazon’s, but they will be emboldened to go cheaper in their D2C operations. Publishers are getting better and better at establishing their own online communities and engaging with them, and their sales through their own websites and affiliated ones should continue to rise.

The debate about pricing, the rights and wrongs of wholesale and agency models and the e-book price collusion cases brought against Apple and publishers in Europe and the US certainly help us draw some conclusions from these sagas –

➢ Competition Authorities will not allow giants to simply dictate their own terms – whichever model they may use as a garb to sell in the market.
➢ Another is that smaller retailers of books and eBooks have got a bit of protection and power back, even if they want to be part of the dominant marketplaces success in both book and eBooks retail.

As PM Modi’s democracy goes soul searching for its braoder and sustainable economic model, a pro-comeptitive culture needs a peep. Looking into this politics of size – what it means for our economy?
Will elaborate on this next.