Presentation on theme: "THE RIGHT TO CHOICE NATIONAL CONCLAVE ON CONSUMER ISSUES, NEW DELHI, OCT. 12, 2012."— Presentation transcript:
THE RIGHT TO CHOICE NATIONAL CONCLAVE ON CONSUMER ISSUES, NEW DELHI, OCT. 12, 2012.
Evolution of Right to Choice Free entry into previously state controlled sectors eg: Airlines Technology and the internet -Railway ticket booking, online booking of cinema tickets Govt. policies favouring entreprenureship - First time entreprenuers, big retail
Impediments to Choice 1. Lack of choices due to presence of oligopolies and cartels in an industry 2. Lack of information 3. Too many choices 4. Poor implementation of government policies and laws 5. High switching costs – either in terms of money, time or effort.
1. Oligoploies and Cartels Firms involved in monopolistic trade practice act against a consumer’s Right to Choice by: Trying to eliminate competition from the market Taking advantage of their monopoly and charge unreasonably high prices. Being indifferent to product quality Limit innovations and technical development Unfair trade practices as they can act with impunity.
1. Oligoploies and Cartels Competition Act 2002 prohibits abuse of dominant position, forming cartels, regulating mergers and acquisitions. Example of monopolistic markets : Railways
2. Too much Choice Paradox of Choice : Prof. Barry Schwartz: “Too much choice paralyses consumers” Example: Mutual Fund Market
3. Lack of Information Rural Consumers: Right to choice restricted by illiteracy Out of 600,000 habitations -- clusters where the population is 100 or more - - but only 30,000 have a commercial bank branch. Less than half the population has a bank account. Only about 10% of the people have life insurance, and less than 1% have other types of insurance. (Source RBI report Dec2009) Even those who have a bank account do not maintain minimum balance, so banks don’t want to service them. Due to lack of information the rural consumer has no choice in financial instruments
4. Poor Implementation of Government policies When the mechanism of supplying a good to a consumer breaks down or the government’s controls on quality fail, then the consumer has no choice if The good concerned is an essential commodity When the consumer is largely dependent on this supply mechanism Example: - Public Distribution System - Adulterated goods
5. High Switching costs High Switching Costs can be due to documentation and technical difficulties Example: Mobile Number Portability Citing “lifetime contracts”, outstanding dues or subscription to special plans, incumbent operators are able to create hurdles for existing users.
CUTS Study A sample of 11,499 respondents was asked a question to test their knowledge about the choices available to them as consumers. “Could you name any two products or services, for which you have only 1-2 provider/producer/seller?” Only 1.6% were able to correctly name products which have only 1 or 2 producers Overall awareness among respondents about categories where they do not have much choice, is quite low.
CUTS Study Sample = 11,499 “ “Could you name any two products or service other than telecom which should also be provided with portability?” Only 3.4% were able to correctly name products other than telecom which should be provided with portability Overall awareness among respondents about this question is very low.
CUTS Study Sample = 11,499 “ “Could you name at least one sector where free and fair competition will increase benefits to the customer?” Only 2.6% were able to name such a sector. 26% felt there should be more competition in the oil and gas sector to reduce fuel prices.
CUTS Study Sample = 11,499 “ “What are the key barriers to accessing other options for key products and services?” Cost of alternative products and services-16% Transaction fee -14% Access Time-7% Documentation requirement – 3%
CUTS Study The results of the study show that consumers’ knowledge about the Right to Choice is very low. As very few consumers are even conscious of the fact that many sectors do not offer choices in products, it shows that the Indian consumer is highly tolerant of oligopolistic practices. More than 50% unable to even answer the question of what barriers prevent them from switching to other sellers.
Conclusions Choices available to the Indian consumer have multiplied since the 1990s Yet consumers tolerate monopolistic practices. Eg. Oil and gas, railways Rural consumers’ right to choice stymied by low literacy levels leading to lack of awareness of choices
Conclusions Urban financial markets smother the right to choice by offering too many choices Poor implementation of government policies : Eg: PDS To flourish, Right to choice needs: - More competition -Less market imperfections Ability of consumers to take legal recourse