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Differential Pricing of Pharmaceuticals

In: Business and Management

Submitted By andrapalade
Words 1295
Pages 6
Case Differential pricing of pharmaceuticals: the HIV / AIDS Crisis

1) Is the monopoly on patented pharmaceuticals warranted? What barrier to entry prevents the re-importation into the United States of pharmaceuticals sold at lower prices abroad (say, in Canada)?
The monopoly on patented pharmaceuticals is an improper term, and represents only a limited warranty. * First, it is limited in time. The company needs to recover its R&D investment and make a fair profit during the period of exclusivity. * Second, it is limited geographically – as some countries will not respect intellectual property and allow their own pharmaceutical companies to copy innovations, making generic drugs even before the original patent expires. * Third, it lacks the most important element of a monopoly: price control. In most countries, the prices of drugs are set by a governmental agency. The manufacturers are merely consulted; their influence is very limited. In the end, once the price is set, they can only decide if they are willing to sell at that price or not. Take it or leave it. * The combinations of the factors above will put pressure on the pharmaceutical companies to expand geographically as quickly as possible, in order to maximize their chances of recovering their R&D costs and making a fair profit within the time period covered by patent protection. In order to do that, they will accept in some countries prices that are far from ideal – prices they would never accept in a true monopoly situation. In doing so, they open the gates for grey trade – re-importation and parallel imports. * The barrier to grey trade is formed by the combination of several factors: * Price difference * Trade Tariffs (where applicable) * Cost of transport * Regulatory considerations * Reimbursement procedures
For example, if a HIV...

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