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

Amanda Starc and Thomas G. Wollmann

No 29886, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: L11 L41 L65 (search for similar items in EconPapers)
Date: 2022-03
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind and nep-reg
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