This paper presents a model of generic entry competition that captures salient features of the Hatch-Waxman Act, enacted with two incompaible objectives of restoring incentives for new drug development and stimulating generic competition. For the latter objective, Hatch-Waxman eases FDA
approval procedures for generics, and encourages patent challenges by granting marketing exclusivity rights to the first patent challenger. We show that the two entry-promoting measures complement each other in restoring innovative incentives. While branded and generic drug manufacturers’ interests are opposed in general, there are cases in which they all benefit from marketing exclusivity. The welfare implications are also examined.
Revised in July 2016