Brown Bag Seminar: Can Divestitures Undo Cartel Damage? Evidence from the Teva-Allergan Merger

Structural remedies, primarily divestitures, are the standard tool used by antitrust authorities in merger control to preserve competition ex-ante. Anticompetitive conduct, in contrast, is prosecuted ex-post: in the United States by the Department of Justice and state attorneys general under the Sherman Act, separately from the Federal Trade Commission's merger review under the Clayton Act. These two enforcement tracks operate under distinct statutes and are not jointly designed.

This paper exploits a natural overlap between them. In 2016, the FTC required Teva to divest 79 generic-drug products as a condition for its acquisition of Allergan Generics. A subset of these molecules had been the object of a coordinated price-fixing scheme between 2013 and 2015. Using monthly product-level data and a triple-differences design that compares cartelized-and-divested products to cartelized-only and non-cartelized counterparts, I estimate that the FTC divestiture lowered prices by approximately 44% relative to cartelized products that were not divested. By contrast, the cartel premium persisted at about +28% in cartelized molecules where no divestiture displaced an incumbent, suggesting that prosecution alone did not restore competitive pricing.

Three complementary counterfactuals (overcharge-based, elasticity-based, and a structural Bertrand-Nash simulation) estimate consumer harm at $14-22 million in Propranolol HCL alone, and indicate that an anticipated divestiture would have prevented most of it. The results suggest that structural remedies and antitrust prosecution operate as complements, not substitutes, in restoring competitive pricing in previously cartelized markets, and that further interaction between these two entities should be enforced to prevent illegal market behavior.