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Increasing access to medicines 171
lowest price close to the marginal cost of production. In the context
of a disease such as HIV/AIDS, where the total market for medicines
is massive and the humanitarian case for widespread distribution is
great, companies may even choose to sell below marginal costs in
some markets, provided that sufficient profit is recuperated in
others (Danzon & Furukawa, 2003).
Market segmentation is underpinned by intellectual property –
especially patents and trademarks – and contracts. If the intellectual
property rights and contracts are respected, 34 firms can operate
freely within the marketplace without running the risk of having
separate national or international markets compromised by the
resale of the lowest priced medicines into markets where prices are
relatively higher. 35 However, infringements upon intellectual
property rights mean that firms cannot control their own pricing
schemes, with serious consequences. Not only does this act as a disincentive
for firms to sell their products in poor countries, it may
also inhibit future innovation.
In short, price differentiation allows companies to cater for
people who otherwise could not afford to purchase their products.
It allows countries that are not able to shoulder the costs of R&D
themselves to afford expensive medicines. It also means output is
higher than the level that would occur if no differentiation were
possible. Moreover, the innovator is able to generate more revenue,
providing a greater pool of resources for investing in new drug
development.
Price controls
Unfortunately, governments often restrict the ability of companies
to implement differential pricing strategies. For example, they frequently
impose price controls on drugs, capping the price of drugs
and making any other sales price illegal. Nearly all economically
advanced countries – with the notable exception of the United States
– impose price controls on medicines in one form or another (Danzon
& Furukawa, 2003). Because the controlled price is effectively the only