Drug shortages can pose significant health risks; the failure of the market to fulfill the demand for life-saving drug treatments can endanger the health of patients. Using a proprietary dataset, we examine the relationship between changes in the quality standards of drugs and drug shortages through the lens of competition. We encode US-Pharmacopeia monograph changes to document changing quality standards in drug markets. Our analysis establishes that relaxing standards leads to an increase in the level of competition; however, tightening those standards does not lead to a similar decrease in competition. Further, we find a non-linearity in the relationship between the number of competitors and the risk of drug shortages. When that number is low, any new entrant will significantly decrease margins while not adding sufficient slack in the market capacity to absorb the failure of any incumbent to supply, leading to an increased drug shortage risk. However, as the number of competitors increases, the impact on profit margins is reduced; market shares of individual manufacturers decrease; and the reserve capacity in the market can more readily absorb the impact of a shortage by any individual competitor, decreasing the shortage risk again.