TOPIC: Despite Leading The E-Commerce Industry Under Oligopoly Competition, Shopee Faces Financial

Crisis Due To Intense Market Rivalry, High Financial Costs And Reputational Challenges.

TABLE OF CONTENTS

1. INTRODUCTION
1.1 Market Overview
1.2 Historical Background
1.3 Problem Statement:
1.4 Research Objective
2. OLIGOPOLY LITERATURE REVIEW
2.1 Definition of Oligopoly
2.2 Economic Efficiency under Oligopoly
3. THE COMPETITION OF THE E-COMMERCE & ONLINE RETAIL INDUSTRY IN VIETNAM
3.1 Current Situation of Shopee’s In The Vietnamese Market
3.2 Existing Rivals
3.2.1
3.2.2 Shopee’s service differentiation
3.3 Barrier of Entry
4. THEORY APPLICATION
REFERENCES

1. INTRODUCTION
1.1 Market Overview
According to a report from the Ministry of Industry and Trade of Vietnam, the e-commerce market reached a value
of $13.7 billion in 2021, marking a 16% increase compared to 2020, and is projected to grow by 30% annually until
2025 (International Trade Administration, 2024). Key driving factors include high internet penetration (70% of the
population), a growing middle class, and government support policies such as the National E-Commerce
Development Plan for the 2021-2025 period. This market not only serves domestic consumers but is also expanding
into cross-border e-commerce, with participation from both international and local platforms.
 1.2 Historical Background
E-commerce in Vietnam has experienced a significant growth since the early 2000s as before this time, online
transactions seemed to be uncommon due to limited internet accessibility. The foundation of e-commerce
development was marked in the early 2000s, with key milestones such as the introduction of the E-transaction Law
in 2005 and the rise of local platforms like Vatgia.com and Chodientu.vn. From 2010 onward, improved internet
infrastructure , widespread smartphone usage, and the adoption of digital payments fueled rapid growth of the
industry. Major global and local platforms, including Shoppee, Tiki, Lazada rapidly grew thanks to the support from
government policies promoting digital transformation. Today, Vietnam’s e-commerce is one of the fastest-growing
in Southeast Asia, driven by young customers and their increasing trust in online shopping.

1.3 Problem Statement:

Despite being the largest e-commerce platform in Vietnam, Shopee is facing significant challenges that test its
ability to thrive. The competitive landscape is tough, as Shopee competes against two dominant players, Lazada
and Tiki. Lazada benefits from the backing of Alibaba, which enables it to offer extensive delivery services and a
wide range of products. Meanwhile, Tiki attracts customers with its specialized product selections and fast delivery
times. Additionally, TikTok Shop has emerged as a formidable competitor by integrating entertainment with
shopping, appealing to younger consumers and potentially drawing them away from Shopee. (Nguyen, 2024)

In addition to these competitive pressures, Shopee encounters regulatory hurdles in the Vietnamese market. The
platform must navigate local laws, including the E-commerce Law, consumer protection regulations, and tax
requirements. Meeting these legal obligations requires significant resources and careful attention to avoid
operational risks and financial penalties.

Moreover, Shopee's financial situation has become challenging. In 2022, the company had to reduce its workforce
as operational costs related to logistics, marketing, and technology investments escalated. Complicated foreign
market expansion efforts, combined with heavy investments in international growth that have not yielded the
expected returns, are further straining Shopee’s financial stability. To maintain its market leadership, Shopee must
address these multifaceted challenges effectively. (Quang, 2022)

Beside that, Shopee - one of the largest e-commerce platforms in Southeast Asia, is facing a deadly problem with
counterfeit goods. The platform’s 2020 report shows that counterfeit goods are being sold in a wide range of
categories, including watches, jewelry, leather goods, clothing, fashion accessories, food, beverages, sports
equipment, and pharmaceuticals. Shopee in markets such as Malaysia, Taiwan, Thailand, Indonesia and Vietnam
has a higher rate of counterfeits than its domestic e-commerce platforms and even Shopee in Singapore and the
Philippines. The issues Shopee is facing in its counterfeit control efforts include inconsistent infringement handling
processes, slow responses, lack of proactive measures and complex counterfeit removal processes. These limited
experiences not only reduce the customer experience but also affect Shopee’s reputation in the fiercely
competitive e-commerce market. (Asia-Pacific, 2021)

The question is what Shopee needs to do to consolidate its leading position while ensuring certainty in an
increasingly strict environment.
 1.4 Research Objective
The objective of this report is to analyze Shopee's financial crisis despite its leading position in the e-commerce
industry under oligopoly. This study examines the strategies that Shoppee applied in the Vietnamese market and
the key factors contributing to Shopee’s financial struggles. Additionally, comparisons with other major e-
commerce competitors such as Tiki, Lazada,... are made to highlight Shopee’s strategic responses and market
positioning. The report provides data and illustrations to present the Shopee’s current financial situation and the
general competitive landscape.

2. OLIGOPOLY LITERATURE REVIEW

2.1 Definition of Oligopoly
As defined in the Principles of Economics book (Mankiw, 2021), oligopoly is a type of market structure where a
small number of large companies dominate the industry. Each company offers a product similar or identical to the
products offered by other sellers in the market. Since there are just a few key players, firms in an oligopoly set
prices, rather than taking prices from the market. However, in choosing how much to produce and what price to
charge, each firm is concerned not only with what its competitors are doing but also with how its competitors
would react to what it might do. Moreover, some of the barriers to entry which prevent new players from entering
the market in an oligopoly include economies of scale, regulatory barriers, accessing supply and distribution
channels, capital requirements, and brand loyalty (Investopedia, 2024).

The e-commerce and online retail industry in Vietnam is an example of an oligopoly market. Vietnam's e-commerce
market is controlled by a small number of large platforms including Shopee, Lazada, Tiki, Sendo, and TikTok Shop.
The majority of market share and revenue is generated together by these businesses, with Shopee alone leading in
terms of sales volume and customer engagement (Phuong, 2024). The e-commerce market has grown rapidly, but
it is still challenging for new firms to enter due to barriers such as the need for significant technological investment,
logistics infrastructure, and brand recognition. Moreover, these firms are interdependent, reacting strategically to
each other's actions through pricing and marketing. They also focus on non-price competition like user experience
and delivery speed (Janberg, 2025). This concentration of power and strategic interdependence among a small
number of firms defines the oligopolistic nature of the industry.

2.2 Economic Efficiency under Oligopoly

Oligopolists are best off when they cooperate and together act like a monopolist-producing a small quantity of
output and charging a price above marginal cost. However, this is often impossible due to the fact that each
oligopolist only cares about its own profit. The reason is because there are powerful incentives that prevent them
from maintaining the cooperative outcome. Moreover, cartels cannot be formed due to the disagreement among
cartel members over how to divide the profit in the market. In addition, antitrust laws prohibit explicit agreements
among oligopolists as a matter of public policy (Mankiw, 2021).

To be more specific, one must first understand a concept of a game theory called the “Prisoner’s Dilemma”. This
scenario demonstrates how rational decision-makers might decide to compete rather than cooperate, even when
cooperation would lead to better results. In an oligopoly, firms face a similar situation when deciding whether to
cooperate by setting high prices or compete by cutting prices. If both firms collaborate, they receive monopoly-like
profits, but each has an incentive to cheat by lowering prices to gain a larger market share. If one cheats while the
other maintains high prices, the cheater benefits while the other loses. Whereas, if both firms choose to compete, a
price war occurs, reducing profits for both (Mankiw, 2021).
This is why the outcome of oligopolists' decision is often a Nash equilibrium. In a Nash equilibrium, each firm
selects its best strategy, considering the predicted actions of its rivals. However, this doesn't necessarily lead to the
most efficient outcome for society as a whole. Oligopolistic markets often exhibit inefficiencies compared to perfect
competition, such as higher prices and reduced output, because firms possess some degree of market power and
can influence prices (Mankiw, 2021).

Shopee operates in an oligopolistic e-commerce market in Southeast Asia, where a few dominant firms such as
Lazada, Tiktok Shop, control most of the market. As of 2023, Shopee led the region with a 48% market share and a
gross merchandise value (GMV) of $55.1 billion, while TikTok Shop grew rapidly, overtaking Lazada in second place
with $16.3 billion GMV (Thanh, 2024).

Shopee and its competitors, such as Lazada, engage in intense pricing wars, which can be modeled using the Nash
equilibrium concept. During major sales events like Singles’ Day (11.11) and Black Friday, both companies offer
significant discounts to maximize their market share. This pricing strategy leads to economic inefficiency by
reducing profit margins for both companies. Moreover, this can cause considerable deadweight loss as it may drive
competitors out of the market, reducing competition and creating monopolistic behavior. As a result, there would
be fewer transactions and less economic opportunities for both consumers and producers.

3. THE COMPETITION OF THE E-COMMERCE & ONLINE RETAIL INDUSTRY IN VIETNAM

3.1 Current Situation of Shopee’s In The Vietnamese Market
Shopee continues to dominate Vietnam’s e-commerce market, holding a significant lead over competitors such as
Lazada, Tiki, Sendo, and Tiktok. According to a report by Metric published in 2023, Shopee accounted for nearly
70% of the retail sales market share, reaffirming its strong position in the industry. Its revenue in success surged to
nearly 11 trillion VND, marking an impressive 92.2% compared to the previous year. After years of operating at a
loss, Shopee Vietnam finally surpassed its competitors and recorded an after-tax profit of over 3 trillion VND in
2022. This financial success with unstoppable improvements in operation has enabled Shopee to expand its market
share and enhance its competitive advantage.
Additionally, its success can be attributed to a user-friendly platform, attractive campaigns and a wide range of
product offerings. As Vietnam’s e-commerce sector continues to grow rapidly, Shopee is well-positioned to
maintain its leadership and further strengthen its market influence (Industry Research, 2024)

3.2 Existing Rivals and Shopee’s Service Differentiation

Shopee has established itself as a dominant force in Vietnam’s e-commerce sector through effective differentiation
strategies, setting itself apart from competitors like Lazada, Tiki, and Tik Tok. Key aspects of Shopee’s differentiation
include:
- Shopee live and in-app gamification: Shopee integrates shopping experiences through Shopee live, enabling
direct interaction between sellers and buyers. Furthermore, Shopee’s gamification elements, such as
Shopee Shake, Shopee Farm, …, which are not as prominent on Lazada, Tiki or even Tik Tok, contribute to
making shopping more entertaining and interactive.
- Zero commission model and free shipping support for new sellers: Shopee provides a commission-free
period for new sellers and offers extensive free shipping subsidies, making it easier for sellers to attract
customers without additional expense. Unike Shopee, their competitors such as Tiki and Lazada charge
commission fees from the start.

3.3 Shopee’s Self-interests

 - Increase revenue and profitability: from April 1st of 2025, Shopee will implement significant increases in
floor fees, posing challenges to small - scale sellers. The fixed commissions fees for regular shops is now
raised from 4% to maximum 10% per order. Additionally, Shopee will discontinue certain free support
packages for sellers and introduce fixed fees for return shipping (Viễn Thông, 2025).
- Attract more customers and sellers: Shopee gives out guidelines for its sellers to enhance their
performance on the platform. Moreover, in order to attract more reputable sellers, Shopee offers
marketing tools and many campaigns; informative insights and analysis on customers (Locad team, 2023)

4. THEORY APPLICATION
4.1 Recommendations for Shopee
- According to the latest announcement, starting April 1, 2025, Shopee will increase the fixed fee for popular
product categories, with rates rising between 0.5% and 6%. Categories such as fashion, cosmetics and
electronic accessories may be subject to a fee of up to 10% (Nguyen & Thanh, 2025). This change will
significantly impact sellers’ business strategies, so to minimize the risk of losing sellers, Shopee should
apply a tiered commission fee model, where high-performing sellers benefit from lower fees. In addition,
Shopee can use big data and artificial intelligence to optimize prices, making products more competitive in
the market.
- Shopee should focus on improving its anti-counterfeiting measures to enhance customer trust, protect its
reputation, and comply with regulations. Some measures to consider include: implementing proactive
monitoring technology, simplifying the counterfeit handling process, and tightening seller verification.
Shopee can learn from Amazon and Alibaba by deploying artificial intelligence to scan and detect
counterfeits more efficiently and establishing a transparent reporting system for customers and sellers.
- To attract reputable sellers, Shopee should expand its marketing channels, proactively provide real-time
customer demand analysis data, and provide specialized training programs in the field of e-commerce
business. At the same time, optimizing the logistics system and improving the return process are also
solutions to enhance the shopping experience, increase customer satisfaction, and retain users for a long
time.

4.2 Theory Application

Shopee operates in an oligopoly market with high entry barriers, which has helped it maintain a leading position in
the e-commerce industry despite increased market competition. In this environment, Shopee cannot freely adjust
prices, it should focus on non-price strategies such as optimizing logistics costs, improving customer experience
through policies, and enhancing marketing communications. The increase in floor prices from April 1, 2025
(ThuVienPhapLuatVn, n.d.) reflects price discrimination, a common strategy in oligopolies to maximize revenue
while retaining sellers. However, excessive fees could drive sellers away, which leads to a decrease in product
supply on the platform and indirectly affects the customer experience. In addition, Shopee applies differentiation
strategies, such as Shopee Live, gamification and new seller support policies, to attract and increase the reach of
both buyers and sellers, which creates a competitive advantage over Lazada and TikTok Shop. However, to maintain
its position, Shopee needs to continue to innovate by investing in anti-counterfeiting technology, optimizing
operating costs and adjusting flexible fee policies to retain sellers in the long run.
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