Many of you know about the Prisoner’s dilemma. The ecommerce industry of India, has now become the perfect example of it. Before I further go into “How”, for those who are not aware of the concept of the Prisoner’s Dilemma, let me explain what it is.
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The Prisoner’s Dilemma
The prisoner’s dilemma is a standard example of a game analyzed in game theory that shows why two completely “rational” individuals might not cooperate, even if it appears that it is in their best interests to do so. The concept as originally framed in the year 1950 by Merril Flood & Melvin Dresher and was formalized by Albert W. Tucker who also gave the concept its name.
In the concept, two member of a criminal gang are arrested who make a pact not to commit to their crime. The prosecution lacks sufficient evidence against them. They put the criminal in separate rooms with no means to contact each other. As the prosecution doesn’t have enough evidence, it offers both the criminals an opportunity to accept the crime and reduce his sentence. The situations so arise are-
A) If both of them breaks the pact and accepts their crime, the sentence will be 2 years
B) If one of them breaks the pact & accepts the crime, he will be set free, and the other will get 3 years
C) If none break the pact, they will both get 1 year in prison
As the two criminals cannot talk to each other, being locked in separate rooms, both fear of losing out to his partner and ending up 3 years in jail. This makes both of them break the pact and settle for 2 years in jail, i.e. a year more than what they would have got by sticking to their pact. Both loose.
If you want more explanation of the prisoner’s dilemma, watch this video:
Circa 2008
Some might be surprise, but Flipkart is not the first company to start ecommerce to India. It has been in India for quite some time. In fact here is a screenshot of Rediff selling cassettes in the year 2000.
What Flipkart did well was change the habit of Indians in online shopping. They used multiple catalyst like – awesome customer support, prompt delivery, among other. However, their biggest weapon was – Discounts. They sold goods cheaper than what what we could buy even at the local store.
Flipkart = Criminal of the concept prisoner’s dilemma
Discounts = The crime
Both investors and consumers (us) happily supported the crime.
Now, who wouldn’t love the excitement of doing a crime. And that too if it is legal. :)
Snapdeal, Letsbuy and couple of other teams quickly got attracted to do this crime & found their God fathers (investors) to support them. There were some like Mahesh Murthy who revolted against the crime, but then most of us were loving it.
Flipkart+ Amazon+Snapdeal+Others = The Gang
The issue
Consumers love towards ecommerce was far less then that towards discounts!!!
Back to 2016
GodFather is not supporting anymore. (Fund raising has slowed). Police have become much more strict with regulations ( Valuations are down – Morgan Stanley marks down Flipkart shares value by 27%). . Ammunition (cash) is going out of stock.
Time to stop the crime and live a gentleman’s life. But how?? Discounts have been what most e-commerce industry had been built on.
The Pact
If all ecommerce companies, decided to create a cartel, and cut discounts at the same time, all of them of them win, like in the 3rd situation of prisoner’s dilemma. (where the criminals decided to trust each other and co-operate).
However, in the real world, being competitor , these companies are in isolation. Even if one of them blinks, the other one will lose. Hence, all of them break the pact (and take the 1st path of prisoners dilemma). All of them loose.
Will the pact be ever implemented?
Yes . That’s the only solution out of the loads of of crime done by ecommerce companies. These pacts will be called acquisitions.
Who will be the real winner?
Companies like Tata, reliance, future group. The companies which never burnt cash for discount i.e. the companies that never did the crime. Why – because, soon everyone will be on a level playing field with no discounts.
( I for one will be super excited to see Future Group finally win the game. Kishor Biyani, for me, is the real superstar of retail industry of India. )
About the Author: Ankit Dudhwewala, is the CEO and CoFounder of SalesHandy. He has also cofounded SoftwareSuggest.com. Follow him on @ankitdudhwewala.