Negative Incentives and Regulatory Capture: Noncompliance with Price Ceilings on Essential Medicines in India

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Abstract

Nonmarket scholars have paid limited attention to noncompliance as an alternative strategy to capture regulators; yet noncompliance is particularly consequential given its potentially significant negative externalities. We exploit rich data on price ceilings introduced in India in 2013 on 255 essential medicines to test whether noncompliance by other firms drives the focal firm's noncompliance decision. Our results indicate that noncompliance by other firms, particularly those with larger products in the market, is positively associated with a focal firm's noncompliance. The focal firm's scope and sales positively moderate this relationship. Overall, our study indicates that firms are more likely conclude that the potential benefits of regulatory capture using negative incentives outweigh the potential financial and social costs in the presence of a greater number of firms that are already noncompliant. As such, our study draws attention to negative incentives as an important yet largely overlooked nonmarket strategy.
Original languageEnglish
Pages (from-to)336-374
Number of pages39
JournalJournal of Management Studies
Volume61
Issue number2
Early online date2022
DOIs
Publication statusPublished - Mar 2024

Bibliographical note

Publisher Copyright:
© 2022 The Authors. Journal of Management Studies published by Society for the Advancement of Management Studies and John Wiley & Sons Ltd.

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