A Study of Innovation v. Competition: How Did Regulation Affect Firm Behavior via the Hatch-Waxman Act?

This dissertation examines the effects of the Hatch-Waxman Act on the pharmaceutical market’s behavior. The aim is to evaluate if and how brand-name pharmaceutical companies and generic firms alter their behaviors after the Hatch-Waxman Act and whether the Hatch-Waxman Act was able to attain its goal of balancing innovation and competition. Chapter one focuses on the theoretical dynamic Stackelberg model and Chapter two looks at empirical results. Chapter one provides theoretical justification for Chapter two; in a dynamic Stackelberg type environment, firms adjust their strategies in the face of shocks, such as the Hatch-Waxman Act. In the Hatch-Waxman Act’s wake, brand pharmaceutical companies adjust the number of patents protecting their inventions while generic firms are more likely and able to enter generic sub-drug markets. The evidence presented in the two chapters show that firms do adjust their behaviors and a closed form solution is possible under either open-loop and feedback solutions (under strict assumptions); the Hatch-Waxman Act induces brand-name pharmaceutical companies to adjust their patenting behavior in the presence of certain market exclusivities while generic firms are more likely to enter certain drug markets based on the number of patents protecting the drug.