2016-08 , Institute of Innovation Research, Hitotsubashi University
This revision: August 16, 2016 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.