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