Nexus between Market Performance and Concentration: The Study of Traditional Knowledge-based Medicine Companies of India

Abstract

Background: Traditional knowledge is defined broadly as a cumulative, collective body of knowledge, experience, and values held by societies with a subsistence history. Traditional knowledge-based medicine (TKBM) has a long history across the globe, including India, and traditional healthcare systems have thrived for centuries. However, indigenous medical practices have been severely challenged by the influence of modern-day medical sciences and technologies, which also have their advantages and limitations. So, there exists a significant motivation to investigate the TKBM companies in terms of their absolute and relative positioning, operational modes, the process of commoditization, and responses to the various measures adopted by the government. Purpose: The current study focuses on the performance of traditional knowledge-based medicine (TKBM) companies through their efficiency scores. Further, it studies the relationship between market concentrations and the efficiency scores of the TKBM companies. In the subsequent investigation phase, the study uses different measurement processes for concentration and controls a set of firmspecific characteristics to capture the relationship effectively. Design/Methodology/Approach: Data Envelopment Analysis (DEA) has been used to evaluate the efficiency score of the companies. Then, various market concentration indices have been used to measure the market concentration of the TKBM industry. After evaluating their efficiency and market power, we applied a Least Square Dummy Variables (LSDV) regression model to explore the relationship between the companies’ efficiency and market concentration along with firm-specific characteristics as control variables. Requisite secondary data are compiled from the CMIE Prowess IQ, Ayush report, E-Aushadhi portal, the Annual Survey of India (ASI), the Economic Adviser Ministry of Commerce and Industry, annual reports of the respective companies, and their websites. Research and Policy Implication: From a policy point of view, the study suggests that these companies must adopt different asset management techniques to tackle the negative asset tangibility and to improve their performance. Also, companies with market power lead the industry. Therefore, the rest of the companies must adopt various strategies to consolidate their position in the market. Policy leaders like government administrators, planners, economists, and researchers should also focus on providing cost-minimization policies, skills, techniques, and regulations to maintain market competition in the TKBM industry. Originality/ Value: To the best of our knowledge, hardly any systematic study exists on the performance analysis of TKBM companies in terms of efficiency enumeration and using DEA methodology. Additionally, the nexus between market concentration and efficiency adds value to the novelty of our present work.