The Issue of Price Cutting
Skaria Ephrem
Background
The increased competition among the Cement dealers in Kerala (India) has resulted in many of them selling cement at a lesser price than the stipulated market price. The intense price cutting has been worrying the cement companies and the KCDA (Kerala Cement Dealers Association) as it negatively affects the market price of cement and also the profit margin of the dealers. This has also resulted in unhealthy competition among the dealers. After many discussions and trials, the KCDA and the cement companies have arrived at a conclusion that they’ll suspend the dealers, for a stipulated period, if they are caught in price cutting. This decision has been able to bring things under control to a certain extent.
However, the rule breakers have started finding their way out to beat the system. They do not mind running the risk of a suspension as the punishments currently in place are not stringent enough. Some of the dealers use false proofs with which, the chances of getting caught are bleak. Some of them negotiate with the customers and promise them to give them the cement for a lesser price, provided they keep it a secret. Some of them promise the customers to give huge discounts on other items they buy. Due to many such issues, which are beyond control, the company and the association have not been able to bring in a fool-proof system. This is making the life very difficult for dealers who are ethical. Furthermore, the rule breakers end up making undeserved profits. Hopelessness in finding a fool-proof solution has forced some dealers who are ethical to take up unethical ways.
My view
As it is difficult to make the system fool-proof and as it is hard to bring proof against the offenders, the KCDA and Cement companies should make the punishments harsh. In the present scenario, if a dealer breaks the price limit and sells a cement brand say ‘xyz’ to a customer, he is suspended from selling only the brand ‘xyz’ for 3-7 days. However, this does not affect him much as he still has the freedom to sell other brands. So, I feel that if a dealer is caught for price breaking, his minimum suspension should be for 2 weeks and he should be suspended from selling all the other brands. Repeated offence should attract punishments as severe as dismissal. Fear of harsh punishments would force many dealers to refrain from indulging in such unethical practices. KCDA and companies should also look at identifying (though it is very difficult) and rewarding those following ethics, since rewards are more influential than punishments (Trevino and Youngblood (1990)).
This ethics case was written by Skaria Ephrem, a student at Loyola Institute of Business Administration, Chennai.