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Pharmaceutical Patents and Generic Entry Competition: A New View on the Hatch-Waxman Act


  • WAN, Jiangyun(Yunyun)


We present a formal analysis that sheds new light on the Hatch-Waxman Act. Hatch-Waxman restores incentives to develop new drugs by extending the patent life for them, but also promotes generic entry by reducing entry costs and by providing 180-day marketing exclusivity to a first challenger to the patent. Although these two objectives appear incompatible, our model shows that marketing exclusivity, with a significant entry cost reduction, contributes to incentive restoration. It finds however that social welfare is lower with marketing exclusivity. Finally, our analysis suggests that marketing exclusivity not be granted in the case of drugs for rare diseases.

Suggested Citation

  • MIYAGIWA, Kaz & WAN, Jiangyun(Yunyun), 2016. "Pharmaceutical Patents and Generic Entry Competition: A New View on the Hatch-Waxman Act," IIR Working Paper 15-18, Institute of Innovation Research, Hitotsubashi University.
  • Handle: RePEc:hit:iirwps:15-18
    Note: Revised on July 11, 2016

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    References listed on IDEAS

    1. Mark A. Lemley & Carl Shapiro, 2005. "Probabilistic Patents," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 75-98, Spring.
    2. Richard G. Frank & David S. Salkever, 1997. "Generic Entry and the Pricing of Pharmaceuticals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(1), pages 75-90, March.
    3. DiMasi, Joseph A. & Hansen, Ronald W. & Grabowski, Henry G. & Lasagna, Louis, 1991. "Cost of innovation in the pharmaceutical industry," Journal of Health Economics, Elsevier, vol. 10(2), pages 107-142, July.
    4. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, July.
    5. Toshiaki Iizuka, 2012. "Physician Agency and Adoption of Generic Pharmaceuticals," American Economic Review, American Economic Association, vol. 102(6), pages 2826-2858, October.
    6. Choi, Jay Pil, 1998. "Patent Litigation as an Information-Transmission Mechanism," American Economic Review, American Economic Association, vol. 88(5), pages 1249-1263, December.
    7. David Reiffen & Michael R. Ward, 2005. "Generic Drug Industry Dynamics," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 37-49, February.
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    More about this item


    pharmaceutical innovation and patents; generic entry competition; Hatch-Waxman; marketing exclusivity;

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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