Global pricing strategies for innovative essential drugs

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Abstract
This paper examines the pricing of essential innovative medicines according to alternative strategies of firms i) either a country-wise price of discrimination according to the revenues of the consumers of these countries; ii) or a single worldwide price. Two counter-strategies by countries' governments are related to these strategies parallel imports and compulsory licensing of patents. For each strategy, firms' profit and affordability of such drugs are calculated with a simulation model. We show that price discrimination maximises both indicators. Despite this result, some firms prefer to set a unique worldwide price, maybe because they are afraid that low priced medicines would find their way onto the black market and end up in the potentially higher price countries.

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