Abstract

http://ssrn.com/abstract=2278113
 


 



How Do Incumbents Respond to Low-End 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

June 6, 2014

IIM Bangalore Research Paper No. 410

Abstract:     
This article investigates how incumbents respond to low-end firm entry. Prior theory suggests that high-end incumbents raise their price in response to a profit-maximizing low-end entrant but lower their price in response to a welfare-maximizing low-end entrant. This paper uses a dataset of 206 narrowly-defined pharmaceutical markets in India; identifies a low-end firm with a mission defined more broadly than profit maximization; and presents evidence of a decline in high-end prices and dosage sizes offered by incumbents due to anticipated and actual low-end entry. The paper also documents heterogeneous price and non-price responses by incumbents at the low end. Understanding market competition among firms with differing motives is especially important in light of 1) the growing view that shareholder value maximization may be unsustainable in the long term; and 2) the growing number of low-end entrepreneurial experiments across several countries and industries to serve consumers with limited purchasing power profitably.

Number of Pages in PDF File: 39

Keywords: entry, mixed markets, bottom-of-the-pyramid, pharmaceuticals, India

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Date posted: June 13, 2013 ; Last revised: June 7, 2014

Suggested Citation

Bhaskarabhatla, Ajay and Chatterjee, Chirantan, How Do Incumbents Respond to Low-End Firm Entry? (June 6, 2014). IIM Bangalore Research Paper No. 410. Available at SSRN: http://ssrn.com/abstract=2278113 or http://dx.doi.org/10.2139/ssrn.2278113

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

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