Abstract

http://ssrn.com/abstract=2169358
 


 



How Do Incumbents Respond to Bottom-of-the-Pyramid Firm Entry?


Ajay Bhaskarabhatla


Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE); Erasmus Research Institute of Management

Chirantan Chatterjee


Indian Institute of Management (IIMB), Bangalore

October 31, 2012


Abstract:     
Scholars argue that serving markets at the bottom of the pyramid (BOP), composed of consumers with low purchasing power, has been offered as a strategic business opportunity. Beyond serving low-end consumers, do BOP firms affect market prices and the strategic choices of incumbent firms? We examine the impact of a BOP firm’s potential and actual entry on incumbent pricing behavior, particularly that of high-end firms. We find that the threat of a BOP firm’s entry, as well as its actual entry lowers high-end prices and raises low-end prices in the market. We document similar changes in package sizes revealing a potential mechanism through which this impact on prices is manifested. A BOP firm’s entry lowers the package size offered by high-end firms, limits their ability to effectively price-discriminate, and leads to lower high-end prices and an overall increase in the volume of sales. The anticipation of a BOP firm’s entry increases low-end prices prior to actual entry, as low-end incumbents adjust their package-size strategy. We relate these results to recent theoretical models of mixed markets featuring high-end and low-end firm entry and reflect on what makes the BOP strategy sustainable.

Number of Pages in PDF File: 33

Keywords: entry, competition, bottom-of-the-pyramid, pharmaceuticals, India

JEL Classification: L13, L65, M20

working papers series


Download This Paper

Date posted: November 1, 2012 ; Last revised: April 15, 2013

Suggested Citation

Bhaskarabhatla, Ajay and Chatterjee, Chirantan, How Do Incumbents Respond to Bottom-of-the-Pyramid Firm Entry? (October 31, 2012). Available at SSRN: http://ssrn.com/abstract=2169358 or http://dx.doi.org/10.2139/ssrn.2169358

Contact Information

Ajay Bhaskarabhatla (Contact Author)
Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )
P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands
+31 10 408 1004 (Phone)
HOME PAGE: http://people.few.eur.nl/bhaskarabhatla/
Erasmus Research Institute of Management ( email )
P.O. Box 1738
3000 DR Rotterdam
Netherlands
+31 10 408 1004 (Phone)
HOME PAGE: http://www.erim.eur.nl/people/ajay-bhaskarabhatla/
Chirantan Chatterjee
Indian Institute of Management (IIMB), Bangalore ( email )
Bannerghatta Road
Bangalore, Karnataka 560076
India
08026993141 (Phone)
HOME PAGE: http://www.iimb.ernet.in/user/185/chirantan-chatterjee

Feedback to SSRN


Paper statistics
Abstract Views: 469
Downloads: 82
Download Rank: 65,154

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo7 in 0.218 seconds