Does Entry Remedy Collusion? Evidence from the Generic Prescription Drug Cartel
Working Paper 29886
DOI 10.3386/w29886
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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.
Non-Technical Summaries
- Court cases brought against Teva Pharmaceuticals and a number of other generic drug manufacturers allege that for several years...