Implementing differential pricing for essential medicines via country-specific bilateral negotiated discounts

It is widely acknowledged that limited access to essential medicines undermines efforts at improving the health and economic well-being of low-income populations. This has spurred on a number of solutions, including differential pricing based on the economics of price discrimination. A desirable feature of differential pricing is its potential ability to reconcile static and dynamic efficiency concerns. There are, however, various shades of differential pricing and this paper aims to evaluate their consistency with economic theory. Starting with the report of the workshop on 'Differential Pricing and Financing of Essential Drugs' held by secretariats of the World Trade Organization and WHO in Hosbjor, Norway, in 2001, this paper takes issue with how differential pricing has been defined as a tool for improving access to essential drug benefits. The paper notes that inadequate attention has been given to policies and institutional arrangements for creating, expressing and maintaining 'truly' price-elastic demands in low-income nations and for segmenting markets. In addition, considerations of equity and solidarity have distracted policy advocates from balancing conflicting, yet well intended, views and general rules. The paper argues why differential pricing should be implemented via country-specific bilateral negotiated discounts. It maintains that it is feasible to muster an environment conducive to profitable differential pricing whilst satisfying general rules and concerns about self-reliance, transparency, accountability, equity and solidarity.