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

Amanda Starc and Thomas G. Wollmann

American Economic Review, 2025, vol. 115, issue 5, 1400-1438

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 two to four years. We estimate a structural model and 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 $612 million–$1.5 billion.

JEL-codes: L12 L13 L25 L51 L65 M31 O34 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1257/aer.20220276

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