Regulated versus unregulated competition: How drug shortages boost illegal pharmacy sales

Deskripsi

This study examines how product shortages among legal firms create competitive opportunities for illegal firms. We analyze 713 drug shortages in the United States between 2017 and 2023 and show that shortages substantially increase illicit pharmacies’ sales of affected drugs, which rise by 40.5% during shortages and remain 32.8% higher in the six months after shortages are resolved. The effects are strongest for drugs treating chronic conditions, drugs with fewer substitutes, and drugs experiencing more intense shortages. We also find spillover effects, as illegal sales of drugs typically consumed alongside the shortage drug also increase during shortages and remain higher after shortages are resolved. This evidence underscores how regulatory constraints that limit legal firms’ flexibility create opportunities for illegal competitors to capture unmet demand.