Competitive effects of high-end and low-end firm entry: evidence from the Indian pharmaceutical markets

Abstract

The role of the ‘high-end’ multinational corporations (MNCs) and the ‘low-end’ bottom-of-the-pyramid (BOP) firms on competition in pharmaceutical markets of the emerging economies remains underexplored. Using an unbalanced panel of monthly price data for 206 narrowly defined therapeutic markets in India spanning 1999-2011, we find that MNC entry induces greater price dispersion. In contrast, a leading BOP firm’s entry ? with substantially lower prices compared to MNCs and big domestic firms ? truncates both the high and low-ends of the cross-sectional price distribution, and lowers the hazard of exit from the market. We relate our evidence to recent theoretical models of competition featuring high-end and low-end firms and highlight how a single low-end firm entry can significantly impact market outcomes.