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Superstar Products and the Sources of Market Power

  • Series
    PhD Lunch Seminars
  • Field
    Organizations and Markets
  • Location
  • Date and time

    November 17, 2020
    13:00 - 14:00

Abstract: This paper studies the sources of market power using product-level data for narrowly defined markets of the Indian pharmaceutical industry. I present a measure that proxies for product market power and identify the marginal effect of its four determinants: wholesale markup, productivity, retail markup and appeal. Product market power depends positively on demand-side sources (wholesale markup and appeal) and negatively on supply-side ones (productivity and retail markup). I define superstar firms as the largest firms of the industry and superstar products as the top-selling products of superstar firms. The market power of superstar products, while higher, depends on the four sources to the same extent as top-selling products of non-superstar firms. Market power is persistent for the first products launched in a market and the price cap regulation implemented in India helped mitigate average market power, but not that of superstar products. These findings suggest that the global trend in increasing market power originates within the firm, at the product level.