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Does Entry Remedy Collusion? Evidence from the Generic Prescription Drug Cartel (WP-22-15)

Amanda Starc and Thomas Wollmann

Entry represents a fundamental threat to cartels engaged in price fixing. Starc and Wollmann study the extent and effect of this behavior in the largest price fixing case in US history, which involves generic drugmakers. To do so, the researchers link information on the cartel’s internal operations to regulatory filings and market data. They find that collusion induces significant entry, which in turn reduces prices. However, regulatory approvals delay most entrants by 2-4 years. They then estimate a structural model to assess counterfactual policies. The authors find that reducing regulatory delays by just 1-2 years equates to consumer compensating variation of $597 million-$1.52 billion.

Amanda Starc, Associate Professor of Strategy and IPR Associate, Northwestern University

Thomas Wollmann, Associate Professor of Economics, University of Chicago

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