Global Differential Pricing
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Global Differential Pricing
Introduction
In April 2002, a workshop on "Pricing and Financing of Essential Drugs" in poor countries was conducted by the World Health Organization (WHO), the World Trade Organization (WTO), the Norwegian Foreign Ministry, and the US-based Global Health Council. The key takeaway? Differential pricing could help provide affordable access to essential drugs in poorer nations while preserving incentives for research and development of new drugs.
Current Pharmaceutical Spending
According to IMS Health projections for 2002, poorer countries accounted for less than a quarter of global pharmaceutical sales. Of every $100 spent on medicines worldwide, $42 was in the USA, $25 in Europe, $11 in Japan, $7.5 in Latin America and the Caribbean, $5 in China and Southeast Asia, less than $2 in Eastern Europe and India each, and about $1 in Africa and the Commonwealth of Independent States (CIS).
Differential Pricing Strategies
Vaccines, contraceptives, and condoms are already differentially priced across borders. Drug companies are increasingly introducing tiered pricing for their medications, often due to legal pressures. For example, Brazilians and South Africans pay significantly less for anti-retroviral AIDS medications than their Western counterparts.
Despite this, the cost of treatment remains unaffordable for many, necessitating support from foreign donors and private foundations. Experts acknowledged the risk of cheap drugs being smuggled into richer countries and the potential for industrialized nations to impose price controls using poor-country benchmarks as reference.
TRIPS Agreement and Health Safeguards
The Trade-related Aspects of Intellectual Property Rights (TRIPS) agreement permits compulsory licensing (manufacturing a drug without the patent holder's permission) and parallel imports in case of a health emergency. As a result, the European Union and the trans-national pharmaceutical lobby support "global tiered pricing."
High-Tech Products and Pricing
The United Nations Development Program (UNDP) has advocated for differential pricing of essential high-tech products. The Health GAP Coalition emphasized the importance of educating consumers in wealthy countries about the fairness of such pricing practices. As quoted by Ms. Sukaki Fukuda-Parr, lead author of the UNDP report, "Citizens in rich countries must understand that it is fair for people in developing countries to pay less for medicines and crucial technologies."
Expanding Differential Pricing
The WHO and the Open Society Institute launched HINARI ?" Health InterNetwork Access to Research Initiative. Under this program, countries are categorized into tiers based on their GNP per capita, with different pricing strategies for access to biomedical journals.
Authors from developing countries benefit from reduced fees in free, peer-reviewed online science journals. The demand for tiered pricing extends beyond pharmaceuticals to include Western textbooks in emerging economies.
Addressing Inequality
A report submitted to the UN Sub-Commission on Human Rights highlighted the importance of considering the dispossessed within wealthy societies. Issues of affordability are influenced by factors like healthcare accessibility and discrimination.
Understanding Differential Pricing
Differential pricing shouldn't be confused with dynamic or non-linear pricing. It involves setting different prices across global markets based on local purchasing power or other conditions. Unlike dynamic pricing, which fluctuates with supply and demand, differential pricing remains consistent within each market.
Economic Efficiency
According to economist Hal Varian, differential pricing can increase economic efficiency by allowing firms to cover fixed costs while serving different markets at varying price points. This approach is especially beneficial in industries with high upfront costs but low marginal production costs, such as software and pharmaceuticals.
Conclusion
Differential pricing is increasingly seen as a necessary approach in a globalized world, enabling access to essential products in poorer countries while ensuring companies can recoup their costs. Though it faces some opposition, particularly from wealthier consumers, its role in addressing global inequities in healthcare and technology access is undeniable.
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