Pharmaceutical companies' variation of drug prices within and among countries can improve long-term social well-being

Abstract

Drug prices vary considerably across and within countries. On average, pharmaceutical companies charge lower prices in low-income countries than in industrialized nations. Manufacturers' ability to price products differently for different markets--a practice known as price discrimination--increases their profits overall. But it is also likely to result in greater investment in research and development, and therefore in more new drugs on the market. Although reducing price discrimination in order to cut costs might benefit consumers in the short run, it would harm them in the long run by reducing the number of new drugs developed.