Pharmaceutical patents and generic entry competition: the role of marketing exclusivity Kaz Miyagiwa * and Yunyun Wan ** August 21, 2015 Abstract Extensive tests required by FDA severely curtail effective patent length for innovation drugs, raising concern that incentives to develop new drugs are insufficient in the U.S. The Hatch-Waxman Act addresses this issue with a five-year patent extension. At the same time, Hatch-Waxman promotes generic entry by reducing the entry cost for generics and by granting 180-day marketing exclusivity to a first challenger of the patent. While these two objectives seem at odds with other, we show that if the entry cost reduction is substantial, granting the marketing exclusivity also contributes to restoration of incentives to innovate. However, market exclusivity most likely decreases social welfare. Keywords: innovation, generic entry competition, patent, pharmaceuticals JEL Classification Codes: I18, K23, L13 Corresponding author: Kaz Miyagiwa, Department of Economics, Florida International University, Miami, FL 33199, U.S.A. Email: kmiaygiw@fiu.edu * Florida International University, Hitostubashi University (HIAS), and Osaka University (ISER) ** Hitostubashi University (IIR)