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Does Entry Remedy Collusion? Evidence from the Generic Prescription Drug Cartel

Author

Listed:
  • Amanda Starc
  • Thomas G. Wollmann

Abstract

Entry represents a fundamental threat to cartels. We study the extent and effect of this behavior in the largest price-fixing case in US history, which involves generic drug manufacturing. We link information on the cartel’s internal operations to regulatory filings and market data. There is a substantial increase in entry after cartel formation but regulatory approvals delay most entrants by 2-4 years. We then estimate a structural model to simulate counterfactual equilibria. Absent entry, cartel profits would be dramatically higher. Correspondingly, reducing regulatory delays by just 1-2 years equates to consumer compensating variation of $559 million-$1.3 billion.

Suggested Citation

  • Amanda Starc & Thomas G. Wollmann, 2022. "Does Entry Remedy Collusion? Evidence from the Generic Prescription Drug Cartel," NBER Working Papers 29886, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:29886
    Note: EH IO LE
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    Cited by:

    1. Aljoscha Janssen, 2022. "Price dynamics of Swedish pharmaceuticals," Quantitative Marketing and Economics (QME), Springer, vol. 20(4), pages 313-351, December.
    2. Grace, Charlotte, 2024. "Competing models of the Bank of England’s liquidity auctions: truthful bidding is a good approximation," Bank of England working papers 1061, Bank of England.
    3. Yannis Katsoulacos & Evgenia Motchenkova & David Ulph, 2023. "Measuring the effectiveness of anti‐cartel interventions in the shadow of recidivism," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(4), pages 2393-2407, June.

    More about this item

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
    • L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology; Plastics

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