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| Author: | Salvo, A. |
| Title: | Cut-throat fringe competition in an emerging country market: tax evasion or the absence of market power |
| Journal: | Journal of Industrial Economics
2009 : DEC, VOL. 57:4, p. 677-711 |
| Index terms: | competition prices emerging markets tax evasion price control Brazil |
| Language: | eng |
| Abstract: | Brazil's established soft-drink firms recently lost ground to several low-price entrants with small-scale operations and minor advertising. While incumbents considered such undercutting as entrants' lower costs from non-compliance with the law, ‘generics’ responded that incumbents' high prices resulted from unilateral market power rather than cost heterogeneity. By estimating a structural model, the established brands' high prices can single-handedly be explained through low equilibrium price elasticities of demand. Tax evasion in the fringe, while plausible, seems to be offset by higher procurement costs or less efficient scale. More generally, a competitive informal sector can ease the allocative distortions in certain concentrated industries. |
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