Thursday, June 9, 2022
One approach that antitrust enforcement authorities use to address potentially anticompetitive mergers is to seek divestitures in specific, competitively problematic overlap markets while allowing the rest of the merger to consummate. We evaluate the efficacy of this approach by studying divestitures ordered by the U.S. Federal Trade Commission to remedy mergers of generic prescription drug manufacturers. Our study encompasses 230 generic drug markets across 25 mergers from 2005 to 2016. We evaluate the evolution of price, number of competitors, number of entrants, concentration, and market share by analyzing changes in both means and distributions using a large dataset on prescriptions dispensed at retail pharmacies. We estimate differences between markets experiencing a divestiture to matched markets not experiencing any divestitures in quarterly intervals after divestitures. We find that over the two to four years following a divestiture, divestiture markets evolve to have fewer competitors (0.21 to 0.36 fewer relative to an initial average of 3.8 competitors) driven mainly by less entry (0.22 and 0.33 fewer relative to an average of approximately one entrant), and higher concentration (420 and 532 points higher than the pre-divestiture average of 4525 on the 10,000 HHI scale). Average price changes in divestiture markets exceed those in non-divestiture markets by between 1.6% and 5.5% in the two to four years after a divestiture, although unlike with the structural market characteristics, the price differences are not statistically significant. Our analysis of distributional changes shows that while divestiture markets experience similar ranges of outcomes as non-divestiture markets, they also demonstrate some differences in the relative frequency of various outcomes (which is most pronounced in the analysis of market shares). Using a separate administrative dataset, we also analyze differences in exit rates in annual intervals up to five years post-divestiture, and we find that differences in exit rates emerge at the five year mark (about 9% of divested drugs exit compared to 5% of similar non-divested drugs).