The truth about ‘fair competition’ and other insights from Shark Tank India about capitalism today

With drama, tense negotiations and some fascinating pitches, the business reality television show Shark Tank India has drawn an immense viewership. It has a simple conceit: aspiring entrepreneurs pitch their business ideas to “sharks” – a panel of investors – in the hopes of attracting funding from them.

The show offers viewers the thrill of imagining themselves as entrepreneurs and investors. It gives them a glimpse of the hallowed, seemingly mystical world of startup investing. Viewers get the chance to listen to investors speak and gain significant insights from them.

Ironically, a show intended to encourage entrepreneurship and affirm the belief in the entrepreneurial spirit has inadvertently put a spotlight on how capitalism really plays out in India. The success of the show has enabled viewers to understand that consumer welfare and fair competition do not play out the way they are supposed to.

Over time, sharp viewers begin to realise that capitalism fails them both as consumers and citizens.

Gross reality of gross margins

One of the most repeated questions on the show is “what is your gross margin?” Gross margin is what the company retains after deducting the costs directly associated with the production of goods, such as the price of raw materials, production expenses and labour charges. Companies do incur other costs, including marketing and logistics, but to consumers, the cost of production is what matters the most.

Most companies pitched on Shark Tank India had a gross margin between 60%-80%. The higher the gross margins, the happier the sharks are. Sample this: a canned energy drink, which appeared in Season One, was sold for Rs 110, while the cost of producing it was a mere Rs 20. This amounted to a gross margin of over 80%.

Consumers generally believe that a product’s maximum retail price – MRP – is a natural outcome of market forces and any discount on the MRP benefits them. But Shark Tank India shows that there is nothing natural about price and that discounts are arbitrary at best.

This had been acknowledged by the Consumer Goods (Mandatory Printing of Cost of Production and Maximum Retail Price) Bill, 2006, which was introduced in Parliament in 2014. The bill had made it mandatory for manufacturers to print the cost of production alongside the maximum retail price on all products.

It did not, however, specify a formula for fixing the maximum retail price. The bill reasoned that such a measure will “curb the greed of manufacturers” and will help consumers make better decisions while making purchases. Since it was introduced in Parliament as a private member’s bill and the term of the Lok Sabha ended in 2019, the bill has lapsed.

Printing the cost of production on the package would enable consumers to know how much of the increase in price is on account of inflation and how much is the consequence of companies trying to take advantage of the situation.

It is through obfuscating the cost of production from consumers that capitalism facilitates the belief that every deal is a good deal. Shark Tank has helped put a question mark on that perception and made consumers privy to the fact that only a minuscule amount of what they pay is the actual cost of the product.

Too much competition

The show also explodes other myths. It is largely believed capitalism is an economic system that promotes competition and competition will ensure efficiency. The common sense understanding is that everyone has a fair chance to compete and make a living. But Shark Tank India shows how far the reality of capitalism is from this perception.

Sample some of these instances from the show. An oft-repeated phrase is “main iss industry ka goonda hoon.” (I am the thug of this industry.) Frequently uttered as a joke, this phrase captures the anticompetitive tendencies of contemporary capitalism. This innocuous phrase is a candid admission that there are indeed “thugs” in each industry and it is impossible to compete against them on an equal basis.

Despite all the talk about competition, markets are still highly concentrated. A study from 2019 by the Institute For Studies in Industrial Development identified 11 sectors with significant market concentration including domestic appliances and communication equipment.

On Shark Tank India, the most common reason given by the panel not to invest in an entrepreneur’s pitch is that their project lacks scalability. In business terms, scalability refers to the capacity of a business to grow and increase profits.

However, the assumption that every entrepreneur is here to make a multimillion-dollar company and that every business has to become huge is mistaken. As sharks are looking for exit money – or money to exit the business – scalability is imperative. But this does not always bode well for society.

In its original form, capitalism was intended to create several freely competing family firms and not a few multimillion corporations. The requirement of scalability, which the show places as an essential aspect of success, is misplaced.

That isn’t all. The show has other moments where it indicates how fair competition is more of a fiction than a fact in capitalism. The panel members have, on multiple occasions, cited the inability of a product to compete with a legacy company as a reason for not investing in the project.

One panel member famously told an entrepreneur that she would not invest in a project that would be competition to her friend’s firm. These instances demonstrate that deep pockets and strong networks matter beyond good ideas.

Perhaps, the success of Shark Tank India will prompt viewers to counter offer a version of capitalism that respects the rights of consumers and gives an opportunity to every citizen to have a fair chance in competition.

Tony Kurian is a PhD candidate at the department of Humanities and Social Sciences, Indian Institute of Technology, Bombay. His area of research is economic sociology and his Twitter handle is @mtonykurian.