Socially Responsible Pricing: Lessons from the Pricing of AIDS Drugs in Developing Countries

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Abstract
Corporate social responsibility has major implications for pricing decisions in some markets. An extreme case is the pricing of life-saving drugs in developing countries; industry critics have pointed to price as an obstacle to treatment and a factor in the deaths of millions of AIDS victims. This article examines socially responsible pricing in the form of differential pricing across markets, taking into account ability to pay and social welfare. An analysis of AIDS drug pricing between 1999 and 2003 suggests that, in fact, the high prices of AIDS drugs in developing countries sub-optimized contribution earnings in those markets. In the 1990s, multinationals could have earned greater contribution in developing countries by reducing prices, while also saving thousands of lives. However, that could have jeopardized earnings in developed countries, and this, together with other factors, created barriers to socially responsible pricing. Neither multinationals nor developing-country governments can alone create conditions for socially responsible pricing to prevail. This article identifies the role of different players in addressing barriers to socially responsible pricing, including multinationals, governments, non-governmental organizations, and multilateral institutions such as the World Trade Organization and the World Health Organization. This article also offers lessons for managers in industries with characteristics similar to the drug industry, where socially responsible pricing also may be needed, if not demanded.

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