Retail union and regional first mover advantages
Description
An incentive for manufacturers to avoid federal sales tax on inter-state sales of goods, coupled with the influence of a powerful retailers’ union, has contributed to the emergence of India’s multilayered pharmaceutical drug distribution system. The retailers’ union, the All India Organisation of Chemists and Druggists (AIOCD), tightly controls entry, slotting, margins, discounts, and other aspects of drug distribution and sales across regions in India. The AIOCD also engages in unilateral retaliatory boycotts of drug manufacturers offering lower trade margins, as well as wholesalers aligned with parallel trade unions. We use AIOCD’s uniquely rich dataset and exploit variation in the regional order of entry across geographic markets for new pharmaceutical products to quantify regional differences in first-mover advantages, as well as the effectiveness of margins and discounts as mechanisms for overcoming the disadvantages of late entry. Our preliminary results indicate significant regional variations in entry order effects that are not easily offset by increasing retailer margins or offering discounts. Early entry is also associated with a greater number of product varieties (SKUs), indicating a contraction of product space for later entrants. We further investigate the impact of two shocks to the drug distribution system: (i) AIOCD’s retaliation against Odisha and Kerala following the formation of parallel trade unions in these regions in 2011; and (ii) the Competition Commission of India’s 2013 order declaring AIOCD’s control over entry, slotting, discounts, and related practices to be anticompetitive. Using a difference-in-differences framework, we find that fewer SKUs were introduced in Odisha and Kerala beginning in 2011 compared to other states and relative to the pre-2011 period.
Copyright Date
January 2014
Publication Date
1-1-2014
Keywords
First mover advantage, Pharmaceuticals, Retail union
Conference
Academy of Management Annual Meeting, 2014
