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Reverse payments and generic entry competition

Listed author(s):
  • WAN, Jiangyun(Yunyun)
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    In the United States, brand-name drug manufacturers often pay generic companies to delay marketing of their generic products. In this paper we develop an analytical framework to examine the implications of banning reverse payment settlements. We first find that reverse payment settlements occur when generic firms face relatively high entry cost but do not when entry costs are sufficiently low. We next show cases in which reverse payment settlements are harmful to brands. We also consider the counterfactual case when 180-day marketing exclusivity rights are removed from Hatch-Waxman and find that the absence of marketing exclusivity rights encourages brands to proceed with reverse payment settlements.

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    File URL: http://hermes-ir.lib.hit-u.ac.jp/rs/bitstream/10086/28107/1/070iirWP16-09.pdf
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    Paper provided by Institute of Innovation Research, Hitotsubashi University in its series IIR Working Paper with number 16-09.

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    Length: 24 p.
    Date of creation: Aug 2016
    Handle: RePEc:hit:iirwps:16-09
    Note: This revision: August 16, 2016
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    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, 03.
    3. Gregory S. Crawford & Matthew Shum, 2005. "Uncertainty and Learning in Pharmaceutical Demand," Econometrica, Econometric Society, vol. 73(4), pages 1137-1173, 07.
    4. 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.
    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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