Because of its unique institutional and regulatory features, the generic drug industry provides a useful laboratory for understanding how competition evolves. We exploit these features to estimate a system of structural relationships in this industry, including the relationship between price and the number of competitors, and between drug characteristics and the entry process. Our methodology yields a number of findings regarding industry dynamics. We find that generic drug prices fall with increasing number of competitors, but remain above long-run marginal cost until there are eight or more competitors. We also find the size and time paths of generic revenues, rents, and the number of firms are greatly affected by expected market size. Finally, we show how estimates derived from a system of structural equations can be used to simulate the effect of changes in an exogenous variable.

The Dodd-Frank Act mandates that certain standard over-the-counter (OTC) derivatives must be traded on swap execution facilities (SEFs). Using message-level data, we provide a granular analysis of dealers’ and customers’ trading behavior on the two largest dealer-to-customer SEFs for index credit default swaps (CDS). On average, a typical customer contacts few dealers when seeking liquidity. A theoretical model shows that the benefit of competition through wider order exposure is mitigated by a winner’s curse problem and dealer-customer relationships. Consistent with the model, we find that order size, market conditions, and customer-dealer relationships are important empirical determinants of customers’ choice of trading mechanism and dealers’ liquidity provision.