In response to concerns that foreign producers had been setting predatory prices far below their actual production costs so as to drive domestic producers out of business and secure market power, the government lowered the import duty threshold for cross-border transactions in early 2020.

A further barrier to foreign products in Indonesia’s digital marketplaces is in the pipeline as the Trade Ministry is currently working on a revision to a 2020 regulation that would put restrictions on the import of goods to be traded online.

There is a fundamental fallacy in this decision. The government has not produced any evidence that predatory pricing has been taking place on Indonesian e-commerce platforms.

Price reductions achieved by cutting back on inefficient production costs are not only fair but even desirable to stimulate efficiency on a larger scale. Likewise, scaling up production to lower per-unit costs is also not predatory pricing.

If a firm manages to gain a larger market share simply because of its high productivity or smart cost management, labeling them “predators” sets a dangerous precedent for the economy as it would obstruct competition and hamper innovation in the market.

In principle, predatory pricing must meet three conditions: that the predatory firms charge below-cost prices, that they push out competitors to gain market dominance and that they charge excessive prices afterwards to recoup their losses. The absence of these elements makes slapping on a predatory pricing label unjustified.

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