The Rise of Fringe Competitors in the Wake of an Emerging Middle Class: An Empirical Analysis

Abstract

The "emerging middle class" has become a force of economic importance in many consumer markets around the globe. A striking phenomenon in some of these markets is the growth of "generic," low-price brands that compete with established premium brands over the expanding consumer purchasing power. In this paper we examine the impact of a substantial rise in Brazil's living standards on the development of the country's large soft-drink market, during a six-year period that saw unprecedented growth in the share of generic soda brands. Our demand study draws on data sources that capture both social mobility and market outcomes. Our analysis suggests that the emergence of a price-sensitive, new middle class aided the growth of the fringe. Our estimated demand model rationalizes a drastic price cut by Coca-Cola that allowed it to contain the fringe's growth.

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