Restricting modern retailers: Winners and losers
From last week's Jakarta Post:
Widely criticized for edging out and causing the decline of traditional retailers? Sure -- but are they really the culprit? Not according to this study.
The law apparently will focus on zoning issues. Take Jakarta, for instance. According to one of the ministry's general, in Jakarta, (I presume, new?) hypermarkets can only be opened at the outskirts. This is, indeed, a victory... for Carrefour, Giants, and all others that have managed to establish themselves in Jakarta prior to the regulation (I presume, the local government isn't going to revoke the licenses for existing hypermarkets). Unfortunately, it's bad news for the rest of us, which is very likely to include the very small retailers that the regulation was supposed to protect.
Why? Hypermarkets operate in an oligopoly market. By removing the threat of new entrants, the regulation makes the environment in which the hypermarkets operate more "stable". This has an effect of "softening" the competition amongst existing oligopolies. This softened competition allows oligopolists to increase their profit margins. Hence, I suspect that this regulation will increase the real profits of hypermarkets located in Jakarta.
And, if I am correct, guess from whose pockets will these increased profits come from? The rest of us, obviously. Since many owners of warungs -- street-side vendors -- also purchase their goods from these hypermarkets, they are likely to have to pay more that before. They would pass some of those costs to the consumers, but since goods offered by these small vendors tend to be elastic, this will reduce their overall revenue.
Herein lies the irony: A regulation that is supposed to "protect" smaller retailers (despite evidence showing that the hypermarkets are not the most important culprit in their decline) might end up accelerating their demise. On the other hand, the supposedly "big-and-evil" hypermarkets might actually gain from the whole enterprise. And consumers, which is clearly the largest constituents, will lose out from all this.
The government has issued a regulation to restrict the expansion of modern retailers including supermarkets, hypermarkets and convenience stores, which have been widely criticized for edging out traditional retailers.
Widely criticized for edging out and causing the decline of traditional retailers? Sure -- but are they really the culprit? Not according to this study.
The law apparently will focus on zoning issues. Take Jakarta, for instance. According to one of the ministry's general, in Jakarta, (I presume, new?) hypermarkets can only be opened at the outskirts. This is, indeed, a victory... for Carrefour, Giants, and all others that have managed to establish themselves in Jakarta prior to the regulation (I presume, the local government isn't going to revoke the licenses for existing hypermarkets). Unfortunately, it's bad news for the rest of us, which is very likely to include the very small retailers that the regulation was supposed to protect.
Why? Hypermarkets operate in an oligopoly market. By removing the threat of new entrants, the regulation makes the environment in which the hypermarkets operate more "stable". This has an effect of "softening" the competition amongst existing oligopolies. This softened competition allows oligopolists to increase their profit margins. Hence, I suspect that this regulation will increase the real profits of hypermarkets located in Jakarta.
And, if I am correct, guess from whose pockets will these increased profits come from? The rest of us, obviously. Since many owners of warungs -- street-side vendors -- also purchase their goods from these hypermarkets, they are likely to have to pay more that before. They would pass some of those costs to the consumers, but since goods offered by these small vendors tend to be elastic, this will reduce their overall revenue.
Herein lies the irony: A regulation that is supposed to "protect" smaller retailers (despite evidence showing that the hypermarkets are not the most important culprit in their decline) might end up accelerating their demise. On the other hand, the supposedly "big-and-evil" hypermarkets might actually gain from the whole enterprise. And consumers, which is clearly the largest constituents, will lose out from all this.
posted by Arya Gaduh at
11:26 pm
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7 comments
