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Rise of shadow entrepreneurship -Chirantan Chatterjee

-The Hindu

Without regulation, the situation could spiral out of control

Recently, a professor at a business school allegedly misused his faculty position to provide fake certificates to students whom he had compelled to attend an online course that he taught. He essentially took advantage of India’s rising pre-pandemic gig economy in education. When authorities at the institution discovered the racket, they suspended him. This is a cautionary tale for the global rise of shadow entrepreneurship, not just in education but other sectors such as finance (for easy loans), the betting economy (online games) and healthcare (e-pharmacies). Given the potential perverse consequences of shadow entrepreneurship in the long run for consumer welfare, regulation is needed to monitor quality of services.

Supply and demand shock

What might drive the rise of shadow entrepreneurship? When there is a supply and demand shock as momentous as COVID-19, a new market may open up to tackle the shifting inwards of markets, owing to rising prices and lower quantities available. Shadow entrepreneurs, offering the allure of technology-mediated services, can help release the associated distortions and frictions in the market by offering complementary services that traditional service providers may be constrained to offer or consumers might not be able to access due to lockdown constraints. This could produce a redistribution of old consumers towards these new markets provided through technology and also entry of new consumers. While markets may self-correct using the invisible hand principles, the initial spike in demand and ensuing lock-in effects might imply higher market power for early movers.

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