Why Zomato and Swiggy Can't Just Raise Prices

If you run a food delivery app, and your rival is losing money just like you are, you'd think the obvious move is for both of you to raise prices. Charge ₹40 delivery instead of ₹20. Problem solved. Both win. Except neither does. And this is one of the most interesting traps in modern Indian business.

The numbers tell the story quietly. For years, both Zomato and Swiggy have lost money on every delivery order — paying delivery partners more than they charge customers, subsidising the gap with investor cash, and hoping the next quarter will be the one where discipline finally kicks in. It almost never has. And the reason is not incompetence. It is structural.

The prisoner's dilemma, sitting in your food app

In game theory there's a classic puzzle. Two prisoners are caught after a crime. The police interrogate them separately. If both stay silent, they both get a light sentence. If one betrays the other, the betrayer walks free and the other gets 20 years. If both betray each other, they both get 10 years.

The "smart" choice for each prisoner, individually, is to betray. Because no matter what the other person does, betraying gives you a better outcome than staying quiet. So both betray. Both get 10 years. Even though staying silent together would have been better for both of them.

Zomato and Swiggy live inside this puzzle every single day. The twist is — they are not prisoners in a cell. They are CEOs in glass-walled offices in Gurgaon and Bengaluru, making the same doomed choice every Monday morning.

The cage is invisible but it is real. Every executive in both companies can see it. They have almost certainly discussed it in strategy meetings. And yet nobody can step out, because the first one to raise prices loses customers by the truckload to the one who didn't.

This is not a bug in the industry. It is the defining feature of any market where two big players sell the same thing to the same customers with no reason to prefer one over the other.

Why Amul is free and Zomato is trapped

Contrast this with a company like Amul. When Amul quietly raises the price of a litre of milk by ₹2, nothing happens. People grumble, they buy it anyway. Mother Dairy might follow suit a week later. Nobody loses customers.

Why? Because milk from Amul is not really competing with milk from a random rival. Amul has built something over 75 years that Zomato cannot buy with any amount of venture capital — a brand that Indian households trust blindly, a distribution system that reaches every corner shop in every lane, and a cooperative structure that lets them pay farmers fairly while keeping prices low.

That bundle is called a moat. And it is the only thing in business that lets a company raise prices without losing customers.

The four shapes a moat can take

Strategy textbooks list many frameworks, but most good investors quietly narrow competitive advantage down to four real sources. Everything else is marketing.

The first is network effects — the product becomes more valuable as more people use it. WhatsApp is the classic case. You do not use it because it is the best chat app technically; you use it because everyone you know is on it. A new rival with a better product still cannot reach you, because your mother, your boss, and your building's society group are all still on WhatsApp.

The second is switching costs — it is too painful for customers to leave even if they want to. Banks exploit this quietly. Most people stay with the same bank for decades not because it is the best, but because moving salary credit, SIPs, standing instructions, and EMI mandates to a new bank is a three-weekend project most people will never bother to finish.

The third source is scale economies — you can produce or deliver cheaper than anyone else because you are so large. Dmart is the example every finance student should study. Their stores are austere, their real estate is owned not rented, and their supply chain is ruthlessly efficient. The result is that Dmart can sell groceries five to ten per cent cheaper than rivals and still make money. Nobody else in the organised retail game in India can match that economics consistently.

The fourth is intangible assets — brand trust, patents, licences, or regulatory permissions that nobody else has. Coca-Cola has the formula, sure, but it also has 130 years of the red-and-white feeling inside every Indian's head. Dabur has ayurveda heritage. SBI has the implicit backing of the Government of India.

Food delivery has scale, but not enough. Customers do not really care whether it is Swiggy or Zomato — both have the same restaurants, the same delivery times, and the same pricing. There is no real switching cost. There is no network effect between users. There is no brand trust that makes you refuse to try the other. Which is why the two companies can't escape the prisoner's dilemma. They have scale, but they don't have a moat.

The most expensive position in business

There is a specific kind of company that gets funded, scales fast, gets media coverage, and then quietly dies — the "big but not different" company. Byju's was one. Ola, for a long time, was another. Paytm in payments has fought this battle. Each of these built impressive scale, spent heavily on customer acquisition, and then discovered that growth without a moat is just a slower, more expensive way to lose.

The pattern is always the same. A company enters a new market. It wins early with capital and hustle. Rivals enter with the same playbook. Now the company has to choose — either spend more to stay ahead, or accept shrinking market share. Spending more destroys margins. Accepting less destroys growth narrative. There is no good exit unless the company has built something genuinely hard to copy during the good years.

💡 Insight: The most expensive position in business is to be big, but not different.

This is the sentence every B-school graduate should have tattooed somewhere they can see before making a pitch. Scale is not a strategy. Scale is a side effect of strategy. The strategy itself has to answer one ruthless question — if a well-funded rival launched tomorrow, what would stop your customers from walking out?

What this looks like from the reader's chair

When you evaluate any company as a finance student, as a future investor, as an employee deciding where to put the next five years of your career, ask the same question. If a rival launched the same product tomorrow with the same price and the same features, would your customers switch?

If the answer is yes, the company is vulnerable. It does not matter how many crores of funding it has raised. It does not matter that it is on the cover of business magazines. Size without differentiation is a countdown, not a destination.

That is what it looks like from inside a company with no moat. Every decision a customer makes is made on the thinnest margin — the one with the cheaper offer this week, the one with the faster delivery today. This is why the two giants can't escape. Until one of them builds something truly sticky — exclusive supply, private-label kitchens, a loyalty programme that actually changes behaviour, a rating system customers trust more than Google's — they will keep running in place. Big, visible, famous, and quietly bleeding.

The lesson of Zomato and Swiggy is not that food delivery is a bad business. It is that being large is not the same as being safe. The only thing that makes a business safe is being hard to replace.

🎯 Closing Insight: Size is loud. Moats are quiet. Bet on the quiet ones.