03 Apr 2018 19:33 IST

Ola-Uber merger: Prevent the creation of a monolith

Most analysts agree that Ola and Uber together control 90-95 per cent of the ride-sharing business in India | Reuters BL on Campus

The Competition Commission of India ​should step in to thwart a monopoly in the ride-hailing industry

The essence of any free market-based system is competition. If, according to news reports, Ola plans to merge with Uber, that would be the end of competition in the ride-hailing taxi sector as we know it. The Modi government should do everything in its power to block the merger.

Estimates of individual shares of Ola and Uber in the Indian market vary, but most analysts agree that the two together control 90-95 per cent of the ride-sharing business. Forget analysts. Just look at your own smartphone or those of your friends’. Chances are there are just two ride-sharing apps installed — Ola and Uber.

As things stand, these two have already created a duopoly with great power to control every stakeholder — investors, banks, riders, drivers, car companies, city planners and oil companies. Allowing this duopoly to become a monopoly cedes even more control to just a few senior executives of the merged enterprise.

Monopolies are a bad idea, even in extremely small places like Malta or Maldives. They are a terrible idea in a vast, diverse nation such as India.

Complete power

An Ola-Uber combination will have so much power that it will crush any new entrant coming into the business. How? Well, as soon as the monopoly senses a new entrant, it will artificially lower prices and offer discounts to hold on to its customers.

The monopoly will the sweeten deal for its drivers so they don’t switch to the new entrant — and penalise those who do by not hiring them back should they want to return. It will release more taxicabs on to city streets to overwhelm the new entrant, even if doing so harms the environment.

All these actions by the Ola-Uber monopoly will likely be temporary, just long enough to decimate the new entrant and drive it out of business. Once the competition is vanquished, the monopoly will return to dictating every aspect of the industry. Scared by what happened to the now-extinct entrant, other aspiring ones waiting in the wings may just shy away, forever shelving their business plans.

Down the line

Monopolies can have an outsized role in controlling other stakeholders too. If Ola-Uber wants to raise prices, all it needs to do is to pull cars off the streets. The limited supply of seats will automatically trigger its surge pricing algorithms, frustrating consumers as they are forced to shell out more for the same ride.

The monopoly could decide to award its next contract to a specific car company — inviting bids from multiple car makers to squeeze out as many concessions it can. It could dictate that drivers only buy only from its preferred car company or face the prospect of being fired. It could do the same with mobile phone suppliers and telecom providers, key components of the ride-sharing business.

Thwarting monopolistic power

Democracies enacted antitrust laws precisely to thwart the power of monopolies. In the US, according to the Federal Trade Commission, Congress passed the first antitrust law, the Sherman Act, in 1890 as a ‘comprehensive charter of economic liberty aimed at preserving free and unfettered competition as the rule of trade’.

In 1914, Congress passed two additional antitrust laws: the Federal Trade Commission Act, which created the FTC, and the Clayton Act. For over 125 years, these antitrust laws have had the same basic objective: to protect the process of competition for the benefit of consumers, making sure there are strong incentives for businesses to operate efficiently, keep prices down and quality up.

Actions and consequences

To be sure, there have been plenty of bad actors. Remember how the venerable Microsoft forced people to use Internet Explorer, making it almost impossible to uninstall the web browser in favour of a Netscape or Opera? It was only in 2002 that the company agreed to a consent decree with the US government to stop this and other anti-competitive practices.

The decree expired in 10 years, during which time both Netscape and Opera lost so much that they exited the browser market. In a sense, the decree didn’t save these two innovative browsers — but because Microsoft had learned a lesson that it could be sued for anti-competitive behaviour, it was forced to build a browser to go up against Google’s Chrome, Safari and Mozilla Firefox, all of which are now more popular than Microsoft’s Edge, its latest browser. Government action has unleashed competition and made the world better.

Looking to the government

Some of the biggest companies in the US — AT&T, Kodak, ALCOA and Standard Oil — were all tamed by the government when they became too big, unruly and powerful. The remedy in each case was different. Standard Oil was broken down into nearly 30 companies. Kodak was prohibited from selling film other than under the Kodak brand, giving a lift to competitors selling private brand film.

In India, the first antitrust law was the Monopolies and Restrictive Trade Practices Act (MRTP), enacted in 1969. This was replaced by the more robust and modern Competition Act, passed in 2002.

The Competition Commission of India, the quasi-judicial body established for enforcing provisions of the Competition Act, must hasten to block the Ola-Uber merger. In so doing, it will be remembered in the same grateful light as the US government when large companies with too much power have been brought in line. Inaction on the CCI’s part would be a huge disservice to consumers and the hugely popular ride-hailing industry itself.

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