Gojek-Grab Merger: A Disaster for Consumers We All Saw Coming
Would you prefer a monopoly, a cartel or a very uncompetitive market?
On the 9th of April 2018, users of the Uber app in Indonesia was greeted with the message “Unfortunately, Uber is currently unavailable in your area”. It’s not as if it was any big shock to consumers, for weeks the app has told users to migrate to Grab, another ride-sharing application, which the Indonesian operations of Uber had merged with. But at that moment, the stage was set.
The ride-sharing business is a very capital-intensive business and is difficult for newer and less established competitors to enter the market and make said effort profitable in a reasonable amount of time. In fact in 2018, the creator of Gojek has stated that its principal services Go-Car and Go-Ride (car and motorcycle ride-sharing) were being maintained, not because they are profitable, but because they provide an entry point to the profitable Go-Food and Go-Pay (food delivery and electronic payment) services. Gojek in 2019 has been operating for 10 years, already has 64% of the market share in Indonesia, with profits of up to US$8.7 million from Go-Food and Go-Pay and it still struggles with finding a business model to keep Go-Car and Go-Ride profitable.
Compound the difficulty to enter the market with the limited amount of serious competitors in the Indonesian market creates multiple issues. There being only two serious and monolithic competitors in the market means that it is very easy to establish and maintain a cartel (on price, driver policies, etc), as there is little incentive to deviate from the policies that the cartel has established. Furthermore, even if a cartel isn’t established, there is little incentive for these companies to continue to expand (the kind that isn’t a merger) or innovate in their business, their market share having been solidified.
But these two points are moot when Grab and Gojek merge.
Panicking and urging lawmakers to block the merger out of a fear of a monopoly would be a reasonable response, but what would happen in the event that they merge anyways? Would it be any different than what we have now?
The market would be even more difficult to penetrate, with a single company accounting for more than 95% of market share (the sum of Gojek and Grab market shares at the time of writing). There would no longer be a need for a cartel since this singular company becomes a monopoly all on its own and dictates a centralized policy regardless of previous affiliation, including price. And finally, since there are no threats to the company’s existence due to the difficulty of penetrating the market and its dominance, expansion and innovation is virtually unnecessary.
There is fundamentally no difference.
What should happen, then?
The government needs to step in in some way. The market liberal in me says that the Gojek and Grab monolith should be broken up. The social democrat in me says that this monolith should be constrained by lawmakers so that they don’t exploit the monopoly. The authoritarian in me says the government should acquire 51% of the shares of this new company and regulate it like a state-owned company.
Knowing Indonesia and the “middle ground” concept our government keeps on using in everything we do, I expect we’re going to do all three options at the same time with mixed to disastrous effect.
