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1 - Entry Barriers, Personal Relationships, and Cartel Formation

Generic Drugs in the United States*

Published online by Cambridge University Press:  06 December 2024

By
Emily Cuddy ,
Robert H. Porter ,
Amanda Starc  and
Thomas G. Wollmann
Edited by
Joseph E. Harrington Jr.  and
Maarten Pieter Schinkel
Joseph E. Harrington Jr.
Affiliation:
University of Pennsylvania
Maarten Pieter Schinkel
Affiliation:
Universiteit van Amsterdam
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Summary

  • ◦ This case study of generic drug markets illustrates the importance of interpersonal relationships in forming a cartel.

  • ◦ Price fixing began in 2013 when Teva Pharmaceuticals, the world’s leading generic drugmaker, hired Nisha Patel to be the Director of Strategic Customer Marketing. Ms. Patel was tasked with “price increase implementation” and her approach to raising prices was to form an unlawful agreement with competitors to raise prices. She was well placed to engage in this activity as she had close ties to key salespeople at the major generic drugmakers due to having served as Director of Global Generic Sourcing for one of the largest US drug distributors.

  • ◦ Cartels formed in about 90 percent of markets where she had close ties to all market participants, but only about 20 percent of markets where she lacked such relationships.

  • ◦ The effects of collusive behavior persisted long after the cartel’s discovery. Though the conspirators discontinued direct communications after learning about the investigation, the evidence is that collusive prices persisted for many years afterwards.

  • ◦ Collusion did induce some entry but its impact proved limited in these regulated markets. Many cartelized markets did not attract any entry, and the markets with entry saw a delay of two to four years before production started.

Keywords

generic drugspharmaceuticalsprice fixingpost-cartel tacit collusionentry
Type
Chapter
Information
Cartels Diagnosed
New Insights on Collusion
 , pp. 12 - 43
Publisher: Cambridge University Press
Print publication year: 2025

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