Publications

Journal of Economics and Management Strategy, Vol. 34(4): 733-756, 2023 

How do firms compete when all firms in an industry set identical prices? Using Nielsen data on India’s biscuit manufacturers, we document productivity-based competition on nonprice strategies under industry-wide uniform pricing. Products with one standard deviation higher quantity-based productivity contain, on average, 13 percent more quantity per pack for the same price. Productivity also positively correlates with promotions on pack size, availability, and variety. A higher price (per pack size) sensitivity in rural markets combined with industry-wide uniform pricing imposes a higher burden on rural consumers. Additional analyses show that firms can reduce this burden by selling different pack sizes in urban and rural areas.

Heterogeneous Expectations, Forecast Accuracy and Firms' Credit Demand 

European Economic Review, Vol. 154: 104430, 2023 

Firm heterogeneity in formulating expectations constitutes a source of friction for the credit market. An expected improvement of credit conditions in the future may slacken current credit demand. Using a panel of European firms in the period 2010-2019, I find that better expectations on future (six-month) access to credit reduce the probability of a firm to apply for bank loans by 3 percent. Results also suggest that access to credit expectations are adaptive. Although firms fail 43 percent of their access to credit forecasts, they adjust their expectations learning from previous forecast errors.

Research papers

Superstar Products and the Sources of Market Power [new draft coming soon]

The large price difference observed across highly substitutable drugs is often attributed to demand characteristics, i.e. consumers’ perceived quality of the product. I study the supply-side drivers of pharmaceutical prices using product-level data for narrowly-defined markets of the Indian pharmaceutical industry. Controlling for demand primitives (elasticity and appeal) and retail buyer power, I show that productivity is negatively associated with the wholesale price of a drug. This result is consistent with the selection on productivity mechanism and is confirmed by subsample analysis. I also show that the relative wholesale price of a drug proxies its relative producer markup. The sales of the largest firms are concentrated in a small number of superstar products that have higher markups and productivity, and contribute substantially to the industry aggregate markups and concentration.

We examine the relationship between prices and product market shares in the Indian pharmaceutical industry, using detailed data on product-level sales and prices for 8000 narrowly defined markets (active ingredient-dosage form). Despite the high product substitutability and number of competitors within the markets, we observe a positive correlation between product price and market share. We divide the retail price into wholesale price and retail markup and identify their marginal effects on product market share. We tackle the simultaneity bias instrumenting wholesale price with quantity-based product-level productivity and retail markup with firm average markup in the non-focal markets. We find that a one-percent higher wholesale price reduces market share by 5.7 percent, whereas one-percent higher retail markup reduces market share by 1.5 percent. This implies that elasticity of substitution across medicines with identical medical effect for the retailers is almost four times larger than that of the consumers, being the retailers more able to switch across medicines. We find that 77 percent of the market share variance can be attributed to the brand appeal of a drug, that is positively associated with its price but not with its productivity. These results suggest that, although productivity differences induce some degree of price competition, they do not necessarily improve access to medicines in the presence of manufacturer market power, retailer incentives and uninformed consumers.

We estimate consumption inequality in India using novel product-level data during 2014-2018. We show that consumption inequality is severely underestimated if differences in product pack size and quality are ignored. We show that low-socioeconomic status households consume relatively more product units but of smaller pack size compared to higher-status households, resulting in lower quantity consumed. We decompose consumption inequality into quantity effect (lower consumption of a product) and composition effect (a smaller set of products consumed). Surprisingly, the composition effect is significantly larger than the quantity effect, and accounts for the declining trend in consumption inequality in India.

Research in progress