Differential pricing

Doubtful that the differential-pricing strategy can yield a plan for reform that would constitute a substantial improvement over the present regime, I assume that the public good strategy is more likely to yield a reform plan that would avoid the main defects of the present monopoly-patent regime while preserving most of its important benefits. 

Danzon, P. M. and A. Towse. 2005. Theory and Implementation of Differential Pricing of Pharmaceuticals. In International Public Goods and Transfer of Technology Under a Globalized Intellectual Property Regime, edited by K. E. Maskus and J. H. Reichman, 425-456. New York Cambridge University Press. 

The first reason results in a set of direct prices [y]. The second reason results in a set of differential prices [6]. The two kinds of prices permit two different modes of analysis ... 

Cross-subsidies—in which some individuals effectively subsidize others, through differential pricing of services, for example—represent a third group of subsidies. They are not considered here. 

R.D. Laing, Health and pharmacy systems in developing countries. Paper delivered to the WHOAVTO Workshop on Differential Pricing and Einancing of Essential Drugs, Hosbjor, Norway, 8-11 April, 2001. 

W. Haddad, A generic manufacturer s perspective. Paper delivered to the WHO/WTO Workshop on Differential Pricing and Financing of Essential Drugs, Hpsbjpr, 8-11 April 2001. 

One might add that the more general concept of equity pricing , which WHO has advocated [23], is not essentially different to that of differential pricing . To attain prices which are equitable for a given population and compatible with equity one will necessarily have to adjust them to the wide variations in income which exist between countries, and this will involve marked differentiation. The concept of differential pricing is illustrated in Fig. 5. 

Fig. 5. Schematic example of differential pricing. Option 1 smaller amonnts are sold in high priced markets (D and E), while Option 2 larger amonnts are sold to low priced markets (A/B) and greater volnmes can provide the same total revennes, though with lower profit margins, at a lower tiered price. The multiple bands for C reflect the fact that market forces will determine the price in these situations.

For new essential medicines it is not acceptable for low-income countries and poor populations to pay the same price as the industriahzed countries. The poor simply cannot be expected to contribute equally to research, marketing, and shareholder returns, especially as it is unhkely that the return will be used for drug research and development for neglected diseases the prices will in any case render these vital items largely inaccessible. During 2000, the endeavour known as Accelerating Access to Care and Treatment , in which UNAIDS and other partners are involved, has stimulated discussions with five pharmaceutical companies to achieve equity or differential pricing of new essential medicines for low-income countries [20]. 

World Health OrganizationAVorld Trade Organisation, Differential pricing and financing of essential drugs, a WHOAVTO Secretariat Workshop, Hpsbjpr, Norway, 2001. 

To accomphsh this goal of differential pricing requires identifying the key factors that differentiate price-market segments. Then the elements of the price structure may be developed that reflect these factors. 

This prescription suggests that the firm understand fuUy the factors influencing the demand for its products and services. The key question is the role of price in the purchaser s decision process. Price and price differentials influence buyer perceptions of value. Indeed, many companies have achieved positive results from differentially pricing their products and services. 

Valid cost data provide an objective basis for choosing between pricing alternatives, detennining discounts, and establishing differential pricing alternatives. Furthermore, objective cost studies that are completed before the pricing decisions provide the firm with a valid legal justification for its price structure. 

American Airlines succeeded primarily because it used differential pricing to lower prices for a fraction of the seats and attract passengers who would otherwise have flown PeopleExpress. American did not lower prices for the fraction of seats used by business travelers who were not flying with PeopleExpress. Targeted differential pricing is at the heart of successful revenue management. 

In theory, the concept of differential pricing increases total profits for a firm. Two fundamental issues, however, must be handled in practice. First, how can the firm differentiate between the two segments and structure its pricing to make one segment pay more than the other Second, how can the firm control demand so the lower-paying segment does not use the entire availability... 

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