ABSTRACT
Amanda Starc and Thomas G. Wollmann, “Does Entry Remedy Collusion? Evidence from the Generic Prescription Drug Cartel,” March 2022, NBER Working Paper No. 29886, JEL No. L11,L41,L65
Cartels, which involve a group of businesses colluding to keep prices high, have been viewed by economists as a significant threat to the market economy. When businesses cooperate with each other rather than compete against each other, there could be many adverse consequences to consumers. For one, consumers will have to pay higher prices for goods and services. It should be noted that the way cartels keep prices high is by limiting the supply of their output. Further, in the absence of any threat from competition, cartels also have very little reason to innovate or cater to consumers in better ways. In other words, they essentially act like a monopoly. The Organization of the Petroleum Exporting Countries (OPEC) is the most well-known international cartel that influences the price of oil globally through coordinated efforts to limit supply.
