From Closed to Contestable Markets: Product Differentiation in Indian Durable Consumer Goods Industry
We examine the most likely strategy of product differentiation by newly entering multinational firms when market reforms begin in a developing economy. We argue that incumbents in a non contestable protected market do not have the usual advantages of an incumbent as in a standard sequential entry model of contestable markets. In this context we use a model of vertical product differentiation to argue that a new entrant will choose a higher quality product and a higher price given the income distribution profile brought in by the market reforms. We test the propositions empirically on the basis of firm level panel data for five Indian durable consumer goods industries.
|Date of creation:||30 May 1999|
|Date of revision:|
|Contact details of provider:|| Postal: Department of International Economics and Management, Copenhagen Business School, Howitzvej 60, DK-2000 Frederiksberg, Denmark|
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- Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, vol. 18(2), pages 301-317, August.
- Shaked, Avner & Sutton, John, 1987. "Product Differentiation and Industrial Structure," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 131-46, December.
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- Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
- Richard Schmalensee, 1978. "Entry Deterrence in the Ready-to-Eat Breakfast Cereal Industry," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 305-327, Autumn.
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