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Group Affiliation and Entry Barriers: The Dark Side Of Business Groups In Emerging Markets

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Abstract

Business groups dominate the economic landscape in many economies around the world. While business groups overcome the institutional voids arising due to inefficiencies of external markets, they also possess market power, which could be economically and socially counterproductive, especially for unaffiliated firms. Drawing on the transaction cost and industrial organization economics, we examine whether the presence of business group affiliated firms in industries restricts the entry of unaffiliated firms or firms affiliated with small- and medium-size business groups. Findings based on Indian firms suggest that investments by business group affiliated firms in an industry have an inverted U-shaped relationship with the investment by unaffiliated firms. However, investments by firms affiliated with large-sized business groups have a U-shaped relationship with the investment by affiliates of small and medium business groups. These findings suggest that the market power of business groups and entry barrier relationship is contingent on the size of the business groups.

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Author notes

  1. Chinmay Pattnaik, Qiang Lu, Ajai S. Gaur contributed equally, names are listed in a random order.

Authors and Affiliations

  1. Discipline of International Business, University of Sydney Business School, The University of Sydney, Rm 4133 H70 - Abercrombie Building, Sydney, NSW, 2006, Australia

    Chinmay Pattnaik

  2. Discipline of Marketing, University of Sydney Business School, The University of Sydney, Rm 4210 H70 - Abercrombie Building, Sydney, NSW, 2006, Australia

    Qiang Lu

  3. Department of Management and Global Business, Rutgers Business School - Newark and New Brunswick, 1 Washington Park, Newark, NJ, 07102, USA

    Ajai S. Gaur

Authors
  1. Chinmay Pattnaik
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  2. Qiang Lu
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  3. Ajai S. Gaur
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Correspondence to Chinmay Pattnaik.

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Pattnaik, C., Lu, Q. & Gaur, A.S. Group Affiliation and Entry Barriers: The Dark Side Of Business Groups In Emerging Markets. J Bus Ethics 153, 1051–1066 (2018). https://doi.org/10.1007/s10551-018-3914-2

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