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MRP system, digital marketplace and the rise of discriminatory pricing

While you sit back and book your cab, there is a pop-up that suggests you tip the driver to avail a faster ride. This looks like a simple perk that attracts a driver to accept your ride. But what is not simple is how the algorithm has now learnt your willingness to pay the extra cost to the extent of the tip you chose to pay for the same ride.

Today’s e-commerce knows you, your choices and your preferences even better than you do. Privacy concerns aside, just looking at it in terms of price discrimination, it appears like a psychological trap that these machine learning algorithms set for customers, which goes beyond personalised suggestions or digital nudging.

Such discrimination with pricing is based on the consumer’s willingness to pay, which is understood by the algorithm through the patterns of activities that consumers carry out on e-commerce platforms. This raises ethical concerns about business practices and produces a sense of perceived betrayal.

Against this backdrop, discriminatory pricing on e-commerce platforms as a normalised practice in the era of the free market, where fair competition is expected to naturally and gradually mend the business conduct to the benefit of the customers, is an argument favouring misery.

Though such an argument goes undisputed as an established principle, there is a need for policy intervention towards chucking such unfair trade practices during the transition period, which is pushed by market forces towards consumer welfare.

Even when we go back in history to see how transactions transpired between traders and consumers, we will understand how deception and misrepresentation have always been a concern that required regulation.

From the ‘Manusmriti’, which provides guidelines for traders, to the ‘Arthashastra’ on checking unfair trade practices; from Alauddin Khilji’s fixed price on prescribed food grains to the modern legal system during the British rule and beyond, there has always been a need for protecting consumer interest and regulating business conduct.

Price discrimination being normalised, leaving the consumer at the mercy of the free market and competition is disquieting, especially in cases of oligopolistic markets, and cases of enterprises having dominant positions.

The system of Maximum Retail Price (MRP), when the Ministry of Civil Supplies amended the Standards of Weights and Measures Act (Packaged Commodities’ Rules) in the year 1990 to mandate the printing of MRP, was introduced with one of the major objectives being protecting consumer interest from unjust profiteering by retailers.

However, MRP is of less relevance in the present digital era, with many countries having long gotten rid of this system.

Manufacturer setting the MRP at a high profit margin for retailers, which gives the retailer scope for selling at fluctuating rates of discounts on MRP, rules of MRP being breached and bent too often to establish discriminatory pricing are some of the reasons that question the effectiveness of the MRP system.

This rings the alarm not to wipe out the MRP system but to only modify it in a manner to keep up with the core objective with which it was introduced: complete and accurate information to the customer.

Having considered the need for upgradation from the MRP, providing more clarity on the pricing mechanism should be mandated over and above the MRP. Thus, it could be suggested that if the market operating price (MOP) and the suggested retail price (SRP) is printed on the commodities, consumers would understand the price at which the commodities are available to the retailer and the price the manufacturer suggests they be sold to the consumer respectively.

Price discrimination that mostly finds form through the so-called offers, discounts and complicated pricing tactics, which in actuality are deceiving the consumer, could be neutralised through information on the MOP and the SRP, or even more on pricing itself.

It ensures that the consumer is given better bargaining power and is fully aware of the cost that he is paying beyond the MOP, which facilitates well-informed purchase decisions. The system of SRP over the MRP also ensures that the retailer is given the liberty to decide the price at which he wishes to sell his products, which can be a move towards the free market.

Complete and accurate information to the consumer on pricing has been a simple yet effective way to work this out.

The phrase ‘Jago Grahak Jago’ of the Union government is much more relevant than ever before with prices charged by e-commerce platforms being so targeted and personalised. It is important that the regulators show concern; consumers, too, should become more aware. 

As we know, the shift of caveat emptor to caveat venditor, where judicial interpretations in the common law system started becoming more consumer-centric, only reflects the need for consistent regulatory interventions over business conduct to safeguard consumer interest.

(Daeinn AP is pursuing an LLM at Christ (deemed-to-be-university); Sonika Bhardwaj is an associate professor at the School of Law, Christ (deemed-to-be-university) with a strong background in corporate law and taxation)

(Published 12 November 2023, 18:39 IST)

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