Local identity and persistent leadership in market share dynamics: Evidence from deregulation in the Korean soju industry

Abstract

This paper documents persistence in brand preferences and investigates its sources. We examine the Korean soju industry, in which the government designated only one firm for each regional market and obliged consumers to purchase local brands. We find that consumers tend to purchase local brands even after this regulation was removed. To explain the persistent leadership of local firms in their respective markets, we propose an identitybased theory with three theoretical implications. In particular, we consider regionalism in Korean politics, and use presidential election results as events that triggered higher identity costs, thereby increasing local market shares of designated local companies. We find empirical evidence consistent with three theoretical implications, which is robust to several alternative specifications. We further find that various other mechanisms are not fully consistent with our data, suggesting that local identity, once established, can be an important source behind persistence in preferences for local brands.

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