Journal of Economic Perspectives
ISSN 0895-3309 (Print) | ISSN 1944-7965 (Online)
Patents, Innovation, and Competition in Pharmaceuticals: The Hatch-Waxman Act after 40 Years
Journal of Economic Perspectives
vol. 39,
no. 2, Spring 2025
(pp. 27–52)
(Complimentary)
Abstract
A central policy issue in pharmaceuticals is how to balance the dynamic benefits of new drugs against the static benefits of low prices for existing drugs. In the United States, that balance is set by the Hatch-Waxman Act. We review the Act's origins and key features, then present evidence on its effects on competition and innovation. On the competition side, we show how the Act creates incentives for brands to accumulate patents and generics to challenge them, with the result being a rough stalemate. We also discuss strategies deployed by brands to delay generic entry. On the innovation side, we show that the Act's patent extension provisions鈥攚hich aim to allow branded firms to make up for time lost during clinical trials and regulatory review鈥攁re incomplete, resulting in potential distortions. The net result is a convoluted and expensive approach to balancing innovation and competition.Citation
Hemphill, C. Scott, and Bhaven N. Sampat. 2025. "Patents, Innovation, and Competition in Pharmaceuticals: The Hatch-Waxman Act after 40 Years." Journal of Economic Perspectives 39 (2): 27–52. DOI: 10.1257/jep.20241423Additional Materials
JEL Classification
- K22 Business and Securities Law
- L13 Oligopoly and Other Imperfect Markets
- L51 Economics of Regulation
- L65 Chemicals; Plastics; Rubber; Drugs; Biotechnology
- O31 Innovation and Invention: Processes and Incentives
- O34 Intellectual Property and Intellectual Capital
- O38 Technological Change: Government Policy