Jabong Vs. Myntra Discount Wars Game Theory

Game Theory Term Paper – “E-Commerce Discount Wars (Myntra Vs. Jabong)”
Game Theory Term
Paper –
“E-Commerce
Discount Wars
(Myntra vs. Jabong)”
Radhika Singh PGP/17/357
Chand Ajmera PGP/17/192

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Executive Summary
Price has always been a handy tool used by companies with undifferentiated products in the
battle for market share. A price war is said to have initiated when two or more companies
continually lower prices to undercut each other’s market share
Even though theories suggest that Price wars can be loss-loss for both the parties, price wars
are becoming increasingly common because it is quick, easy and reversible action. In some
cases, price wars can alter the industry structure as a whole but there are evidences that prove
the contrary as well. Many a times resorting to price war is not the only available option to gain
the upper hand, changing the game is an alternative option which can help avoid losses to the
company as well as to the industry
The scope of this term paper is to use Game theory to analyze the price war game currently
being played between two ecommerce fashion and apparel players Myntra and Jabong and
also predict the future implication of the games currently being played. It will help in deciding
whether indulging into price war makes sense to the firm and how can the price war be fought
or avoided at first place by the firms.
We have designed two games taking into consideration profit and revenues as pay-offs. Both
the players have four moves at their disposal: Discount, Discount + Back-Up Plan (give less
discount now but invest in alternative strategies), No Discount and Collude. The Nash
equilibrium for the game with profit as pay-off turns out to be (No Discount, No Discount) while
for the game with revenue as pay-off turns out to be (Discount, Discount). But since the current
focus of both the players is acquiring and maintaining the customer base, they will resort to
playing Game No. 2.
Further analysis suggested that if (Discount, Discount) is played in an infinitely repeated game
then the relatively patient player (in this case, Jabong since it has strong financial back-up) will
be able to survive as well as get higher share of the pie. So the best option for Myntra is to
avoid price war and signal Jabong that it is ready to compete on other parameters like Variety,
No of vendors, Quality of vendors acquired and Customer Service. In the hindsight, given that
Jabong is highly unpredictable player, Myntra should build up a superior cost structure and
capabilities so that it can combat future price wars more effectively.
Introduction
Myntra: It is an Indian online shopping retailer of fashion and casual lifestyle products,
headquartered in Bangalore, Karnataka. It was established in 2007 and has been funded by
Venture Capital funds like Tiger, Kalarri, Premji Invest, IDG & Accel Partners. From 2007 to
2010, it was providing personalized products like keychains, mugs, greeting cards, calendars,

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etc. However in 2010, it ventured into retail fashion and lifestyle products. Myntra currently
offers products from more than 600 brands. Myntra’s current market is valued at 1000 crore
Rs. Following table gives the market share of Myntra over the years 2009 to 2013.
2009 2010 2011 2012 2013
1.9 2.3 2.6 3.4 4.1
Myntra has come up with many private label brands recently and is planning to increase the
share of the same. The contribution margin from private label brands is 60% and from the
featured brands is 20-30%. In 2013, Myntra acquired San Francisco based company which is a
developer of 3D virtual fitting technology. Moreover Hrithik Roshan’s apparel brand HRX will be
a featured brand store in Myntra. It aims to become 2800 million dollars Fashion Company by
2020.
Jabong: Jabong, an online retailer of fashion and lifestyle products, was established in
2012.Jabong has been incubated by a German Company, Rocket Internet founded by three
Internet billionaires. Jabong currently offers more than 1000 brands. The annual revenue of
Jabong is estimated to be approx. 750 Crore Rs. Jabong has been known for growing to 3/4th of
Myntra’s size in just 15 months and it is known for running intensive marketing campaign.
According to the founder of Myntra, Jabong has the habit of replicating Myntra’s moves and
sometimes while hurting Myntra, it hurts itself too. Jabong has recently partnered with Rohit
Bahl and NBA for retailing their merchandise.
Discount/Price Wars Game
Response Available
Both the players have 4 moves at their disposal.
 Give Discount ( D ) – A player will play D i.e. give discount on its products to acquire new
customers even though its contribution margin will be lower than in case when it
doesn’t give discount
 Give Discount + Back Up Plan ( D’+ BP) – A player will play D’+ BP where D’< D i.e. it will
give a lower discount and will use the remaining cash to invest in future back up plans
like building up logistics & infrastructure , tying up with brands exclusively etc.
 No Discount (ND) – A player will give no discount and will maintain price
 Collude (C) – A player will join hands with the other player involved and resolve to
maintain price
Financial Performance & Non-financial Performance of Players
Financial Performance:

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Statistics Jabong Myntra
Revenue 750 cr. 1000 cr.
Revenue /pm 625000000 (62.5 cr.) 833333333.3 (83.3 cr.)
No.Of transaction/Month 4,20,000 2,40,000
Overall Apparel Market 16910 cr.
Overall Apparel Market –
Jabong- Myntra
15160 cr.
Non-Financial Performance: To understand the non- financial performance of both the players
we evaluated them on the following basis:-
Ratings Myntra Jabong
Variety 8 8
No of Vendors 7.5 9
Service 8 7
UserInterface 9 9
Marketing 8 9
Price 7.5 8
Overall Rating 8 8.333333
In traditional discount / Price war game (where the products are homogenous), if one player
reduces price and the other does not, the latter will lose all its market but given in this case the
products & services are not homogenous and therefore the market is not driven totally by
price, only x% of the customers will move to the player giving higher discounts.
Assumptions & Rules of the Game
 Assumption 1: 60% of the Consumers of Myntra is price sensitive and therefore will
switch to Jabong in case Jabong gives discount and Myntra doesn’t.
Since rating of Jabong is 8.33 and that of Myntra is 8, hence the similar switch % for
Jabong will be equal to 57.6% (60*8/8.33) i.e. only 57.6 % will switch to Myntra in case if
Myntra gives a discount and Jabong doesn’t
 Assumption 2: In case of discount, apart from acquiring customers from each other,
they would be able to acquire 10% of the remaining apparel market. In case both the
players play (discount, discount) the newly acquired market will be split equally among
both of them
 Assumption 3: We have assumed a similar contribution margin for both the players.
Given below are the details

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Move Contribution Margin ( Profit/ Sales)%
D 5%
D+BP 5% ( Less Discount but the remaining is invested for future developments)
ND 35%
C 35%
 Assumptions 4 : In case Myntra decides to play D+BP ( give discount but not as much as
Jabong + Invest in future) it will be able to retain 65.71% of the customers ( only 34.29%
will switch) while the similar no. for Jabong will be 67.43% ( Only 32.57% will switch)
Calculation:
Assuming Myntra Avg. discount Given (D=35%) while in case of D+BP move it is 20%
now the % switch will be
For Myntra = 60* (20/35) = 34.29%
For Jabong = 57.6* (20/35) = 32.57%
 Assumption 5: In case both players (D,D), (D+BP, D+BP), Customers will not be inclined
to switch to the other
 Assumption 6: Additionally while when both players play (D,D) both will be able to
acquire 10% of remaining apparel market, it will reduce to 7% if both players play (D+BP,
D+BP)
Other Cases:
- In case players play (D, D+BP), they claim 10% market share distributed in the ratio
of their discount i.e. (35: 20) and vice versa
- In case players play ( ND, D+BP), the entire 7% will be retained by the player playing
D+BP
 Assumption 7: In case both the players play (ND, ND) , both retain the market share
 Assumption 8: In case of Collusion
Case 1: If both players collude, they will lose 20% market, because the market is price
sensitive. Both will share the revenues
Case 2: In case players play ( C, D) , the player playing collude will lose out 10 % more
costumers because of its forever resolve to not give discount while the player playing D
will get switched customers from Player A + 10% Acquired from remaining market
Case 3: In case players play (C, D+BP) , the player playing Colludes loss will be same as
before but the player playing D+BP will get Switched customers from A + 7% market
share from B because of reduced discount
Game
Game with Profit as Pay Off
Myntra
Discount Discount + Back Up No Discount Collude

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Plan
Jabong Discount 6.28, 7.33 8.57, 5.04 11.94, 11.67 11.94, 8.57
Discount + Back Up
Plan
4.40, 9.20 5.34, 6.38 8.97, 19.17 8.97, 16.25
No Discount 9.41, 12.26 14.75, 9.6 21.9, 29.17 21.9, 26.25
Collude 7.22, 12.264 12.56, 9.6 19.68, 29.17 20.42, 20.42
Calculation of payoffs:
Strategy PayoffFormula Calculation
Discount,
Discount
= (CurrentMarketShare + Proportionof newly
acquiredmarketshare)/12*ContributionMargin
duringdiscounts(Forboththe firms)
= ((750 + 1516/2)/12)*0.05
= ((1000 + 1516/2)/12)*0.05
= 6.28, 7.33
Discount,
Discount+
BP
= ((CurrentMarketShare + Market share gained
due to switching+newlyacquiredmarket
share)/12)*ContributionMarginduringdiscount
= ((DiminishedMarketShare)/12)*Contribution
Margin duringDiscount+ Back Up plan
= ((750 + 1000*0.342857 +
964.7273)/12)*0.05
= ((1000*(100-34.2857)/100 +
551.2727)/12)*0.05
= 8.57, 5.04
Discount,
No Discount
= ((CurrentMarketShare + Market Share gained
share)/12) * ContributionMarginduringdiscount
= ((DiminishedMarketShare) /12) * Contribution
Margin
= ((750 + 1000*0.60 +
1516)/12)*0.05
= ((1000*0.40)/12)*0.35
= 11.94, 11.67
Discount,
Collude
Margin
= ((750 + 1000*0.60 +
1516)/12)*0.05
= ((1000*0.30)/12)*0.35
= 11.94, 8.57
Discount+
BP, Discount
= ((DiminishedMarketShare + NewlyAcquired
Market Share)/12)*ContributionMargin
= ((750(100-32.57)/100 + 551.27 ) /
12) * 0.35
= ((1000 + 750 * 32.57 + 964.73) /
12) * 0.05
= 4.40, 9.20
Discount+
BP, Discount
= ((CurrentMarketShare + NewlyAcquired
Market Share)/12)*ContributionMargin
= ((750 + 1061.2/2)/12)*0.35

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+ BP (Forboth the firms) = ((1000 + 1061.2/2)/12)*0.35
= 5.34, 6.38
Discount+
BP, No
Discount
Market + MarketShare gaineddue to
switching)/12)*ContributionMargin
Margin
= ((750 + 1061.2 +
1000*0.34286)/12)*0.35
= ((1000*(100-34.286))/1200)*0.35
= 8.94, 19.17
Discount+
BP, Collude
Market + MarketShare gaineddue to
switching)/12)*ContributionMargin
Margin
= ((750 + 1061.2 +
1000*0.34286)/12)*0.35
= ((1000*(100-34.286-
10))/1200)*0.35
= 8.97, 16.25
No
Discount,
Discount
Margin
= ((Marketshare + NewlyAcquiredMarketShare
+ Market Share gained due toswitching) /12) *
ContributionMargin
= ((750*0.43)/12)*0.35
= ((1000 + 750*0.57 + 1516) / 12) *
0.05
= 9.41, 12.26
No
Discount,
Discount+
BP
Margin
=((Marketshare + NewlyAcquiredMarketShare
+ Market Share gaineddue toswitching) /12) *
ContributionMargin
= ((750*(100-32.57))/1200) *0.35
= ((1000 + 750*0.3257 +
1061.2)/12)*0.35
= 14.75, 9.6
No
Discount,
No Discount
= (CurrentMarketShare/12)*Contribution
Margin
(Forboth the firms)
= (750/12)*0.35
= (1000/12)*0.35
= 21.9, 29.17
No
Discount,
Collude
= (CurrentMarketShare/12)*Contribution
Margin
= (DiminishedMarketShare/12) * Contribution
Margin
= (750/12)*0.35
= ((1000*0.90)/12)*0.35
= 21.9, 26.25
Collude,
Discount
= (Diminished MarketShare)/12) * Contribution
Margin
due to switching+Newlyacquiredmarketshare)
/ 12) * ContributionMargin
= ((750*(100-57-10))/1200 )*0.35
= ((1000 + 750*0.57 +
1516)/12)*0.05
= 7.22, 12.264

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Collude,
Discount+
BP
= (DiminishedMarketShare)/12* Contribution
Margin
due to switching+Newlyacquiredmarketshare)
/ 12) * ContributionMargin
= ((750*(100-10-32.57) / 100) / 12) *
0.35
= ((1000 + 750*0.3257 +
1061.2)/12)*0.35
= 12.56, 9.6
Collude,No
Discount
= (DiminishedMarketShare)/12* Contribution
Margin
= (CurrentMarketShare)/12*Contribution
Margin
= (750*0.90)/12*0.35
= (1000/12)*0.35
= 19.68, 29.17
Collude,
Collude
= Equal Divisionof MarketShare = ((1000+750)/(12*2))*0.35
= 20.42
Game with Revenue as Pay Off
Myntra
Discount Discount + Back Up No Discount Collude
Discount 125.67, 146.5 171.4, 100.7 238.83, 33.33 238.83, 24.86
Discount + Back
Up
88.08, 184.08 106.71, 127.55 179, 54.76 179, 46.43
Jabong No Discount 26.875, 245.29 42.14, 192.12 62.5, 83.3 62.5, 75
Collude 20.625, 245.29 35.89, 192.12 56.23, 83.3 58.33, 58.33
We see that if in case the payoff is calculated in terms of revenue, (Discount, Discount) is the
Nash Equilibrium of this outcome, which is the game Myntra & Jabong are currently playing. In
current times when the E-commerce market is said to grow from $1.8 bn. currently to $ 65 bn.
each one of them is trying to maximize their revenue that is acquire more and more customers
even though from profitability point of view both of them are worse off.
From the above two games, we can see from Game 1 that the profit-payoff for (Discount,
Discount) is much lower compared to (No Discount, No Discount). A time may come when both
of them will start moving towards (No Discount, No Discount) strategy as they start becoming
cash trapped or even a situation may arise when either of the players might move out of the
industry or get acquired by the other.
This outcome will depend upon the patience factor for each player. As we are aware that
Jabong is financially strong as compared to Myntra, we assume that delta of Jabong is 0.9 and
that of Myntra is 0.8. If price war game is repeated for infinite number of months, following
will be the payoffs:

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Jabong: 6.8*(0.9)/0.1 = 61.2
Myntra: 7.33*(0.8)/0.2 = 29.32
*difference in pay-offs is significant
Initially in the price-war game, the difference in pay-off of Jabong and Myntra in a one shot
game is (7.33-6.28) 1.05 but if the game is infinitely repeated, then the gap increases ( 61.92-
29.32= 31.88) Jabong (the one having strong back up from Internet billionaires) will survive but
the situation of Myntra will be really bad. Also comparing the % share of the pie if both play
(D,D) strategy shows that while in a one shot game the pie is distributed almost evenly ( 54:46)
with Myntra getting larger share of the pie, in an infinitely repeated game Myntra will be worse
off with just 32.4% of the pie.
Theories suggest that Price war games can be fought better if players can foresee trends and
invest before hands in improving their cost structure, building stronger infrastructure and
working on innovation. Keeping this theory in mind, let us find out how can (D+BP, D+BP) be
the Nash Equilibrium.
Let us assume that “a” is the benefit or the return that Jabong expects by investing in future
while “b” is the benefit that Myntra expects by investing in the future the new game can be
written as
Myntra
Discount Discount+ Back Up No Discount Collude
Discount 125.67, 146.5 171.4, 100.7b 238.83, 33.33 238.83, 24.86
Discount+ Back Up 88.08a, 184.08 106.71a, 127.55b 179a, 54.76 179a, 46.43
Jabong No Discount 26.875, 245.29 42.14, 192.12b 62.5, 83.3 62.5, 75
Collude 20.625, 245.29 35.89, 192.12b 56.23, 83.3 58.33, 58.33
(D+BP, D+BP) will be the Nash equilibrium if the following conditions are satisfied: -
A= (171.4/106.71)=1.606222 B= (184.08/127.55)=1.44
This means that if Myntra sees 44% more benefit from investing in future and Jabong sees
60.62 % more benefit in future the equilibrium can be shifted to D+BP, D+BP
The new game would be: -
Myntra
Discount Discount+ Back
Up
No Discount Collude

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Discount 125.67, 146.5 171.4, 145.33 238.83, 33.33 238.83, 24.86
Discount+ Back
Up
141.4761, 184.08 171.14, 184.08 287.51, 54.76 287.51, 46.43
Jabong No Discount 26.875, 245.29 42.14, 277.27 62.5, 83.3 62.5, 75
Collude 20.625, 245.29 35.89, 277.27 56.23, 83.3 58.33, 58.33
Conclusion
So the best option for Myntra is to avoid price war and signal Jabong that it is ready to compete
on other parameters like Variety, No of vendors, Quality of vendors acquired and Customer
Service. In the hindsight, given that Jabong is highly unpredictable player, Myntra should build
up a superior cost structure and capabilities so that it can combat future price wars more
effectively.
*No. Of Words: (2752-593-50-50-50-50-25) =1934
Bibliography
Margaret E. Slade, “Price Wars in Price Setting Super games”, The London School of Economics
& Political Science
Rohin Dharma Kumar, “Myntra's Big Leap Forward“, Forbes India
Robert C. Blattberg, Gary D. Eppen & Joshua Lieberman, “A Theoretical & Empirical Evaluation
of Price Deals for Consumer Non-Durables”, American Marketing Association
Tarek H. Selim, Strategic Pricing: A Game in Market Economics, American University, and Cairo,
Egypt
Jubin Mehta, Can Game Theory help Indian E-Commerce Company Escape the Ridiculous Price
Wars, Yourstory.in

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