The Competitive Efficacy of Divestitures : An Empirical Analysis of Generic Drug Markets

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 in 230 generic drug markets ordered by the U.S. Federal Trade Commission to remedy 25 mergers of generic prescription drug manufacturers from 2005 to 2016. We evaluate the evolution of price, number of competitors, number of entrants, concentration, market shares, and exit via contemporaneous comparisons between markets experiencing divestitures to those that did not. We find that after two to four years, divestiture markets evolve to have fewer competitors (0.21 to 0.36 fewer relative to an initial average of 3.8 competitors), driven more by less entry (0.22 to 0.33 fewer relative to an average of approximately one entrant) rather than greater exit, and they exhibit higher concentration (420 to 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% two to four years post-divestiture, although unlike the structural market characteristics, the price differences are not statistically significant. We also find that non-divested competitors more frequently experience market share growth compared to divested counterparts. Lastly, 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)