Internal Policy Reforms and Evolution of Market Structure in an Emerging Economy: The Case of India

This paper addresses the issue of how do domestic incumbent oligopoly firms, which functioned under the institutional conditions of protected markets and pervasive government intervention for a long period adjust to a relatively sudden change in market institutional conditions caused by market reforms in the Indian context. It focuses especially on the issue of response mechanism of local firms to competition from new entrant multinational companies (MNCs) and possible strategies of MNCs in penetrating the Indian market. It develops a conceptual framework by incorporating institutional elements into a simple sequential entry oligopoly model. This yields interesting insights into qualitative behaviour of firms in the post-reforms period. A few hypotheses drawn from the conceptual discussion are empirically tested on the basis of firm level panel data drawn from a set of Indian industries.