Source - VSkills
The system of MRP has become commonplace in India. It started out as an important consumer protection regulation, but many economists have been questioning its current existence and form.
Brief history of the MRP:
The Maximum Retail Price (MRP) was introduced in 1990
with an aim of protecting consumers from the malpractices of certain retailers exercising
free will and monopolies over prices in the market.
The New Economic Policy of 1991 focused on the principles
of Globalization, Privatization and most importantly Liberalization, after which
the Indian Market opened up to foreign investments. As a result of this,
competition increased and monopoly ceased to exists owing to the heterogeneity of
products in the market.
Retailers could no longer charge exorbitant prices because
if they did so they would end up losing customers to their competitors.
Here’s why the MRP has become more or less redundant,
with little purpose or meaning
A dysfunctional system
Most essential commodities, like fruits and vegetables
are often purchased off-vendors and peddlers, that don’t quote an MRP.
They are free to charge any price, which is often
determined by location or existing competition.
Unfair MRP prices
MRP was aimed to create equal prices for the same
commodity all over India. But we are very well aware that similar products
often command different prices in urban and rural areas.
Despite having to pay high transportation costs, the retailer
has no choice but to sell it at a lower price in rural areas. He would then
resort to increasing prices in the urban area to make up for the loss.
Therefore, the cost burden of the rural areas is often felt
on the shoulders of the people in the developed areas.
This reduces MRP to farce.
Consumer suffers
To avoid losses, retailers don’t stock up many products.
They feel that if they stock up more than the existing
demand, they may not be able to get a higher price for the product.
They wait for the demand to surpass supply. Observing the
trends in economics, when the demand surpasses the supply, a hike in the price
is inevitable.
Retailers/ Wholesales/ shopkeepers are all entrusted with
the task of meeting the unending demands of the customers but resorting to such
malpractices, wherein they wait for demand to surpass supply so that they
command a higher price, causes immense trouble to the common man.
Different prices for same products
A water bottle that costs ₹100 instead of ₹10, A can of
soda costing ₹200 instead of ₹50 and a bucket of popcorn costing ₹400
instead of ₹50.
I
am sure this rings a bell, doesn’t it?
It takes us right to the ridiculously overpriced packaged commodities in theatres, restaurants and tourist locations.
The scarcity of choice and restriction on outside food,
makes this a monopolistic trend. Customers have no choice but to purchase the same
things at a much higher rate.
The MRP is again reduced to a sham, which in reality
commands zero control over the pricing.
The MRP could have been effective provided it ensured strict
adherence to pricing, irrespective of the location/demand/supply.
The Way-Forward
From the above stated reasons, we get a clear understanding
of how the MRP is of no significance and is often influenced by various other
factors.
The MRP must be done away with. Retailers should have the
right to set a price. If the price doesn’t appeal to the customer, he/she is
free to go to another store to seek a better deal.
Such a competition would ensure consumers aren’t exploited
in places like theatres, restaurants or tourist locations.
Spoiling customers for choice, would go a long way in
protecting consumer interest and promoting a healthy competition in the market.
Written By - Tushna Choksey
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