engleski

Big Problems of Small Countries: Impossibility of Discrimination by Direct Segmentation

OBJECTIVES: To show how the legal and institutional system of the European Union prohibiting price discrimination of third degree, i.e. direct segmentation according to country of origin, has a negative impact on smaller markets, and to find alternative marketing, bundling, distribution, pricing, and reimbursement policies acceptable for both producers and national health providers. METHODS: A theoretical approach is supported by a practical example. A game theoretical approach is used to find optimal producer and national health provider policies and game equilibria. RESULTS: High wage, high income countries have higher health opportunity costs, higher willingness to pay and higher capabilities to pay, i.e. their demand curves are above the curves of lower income countries and have lower elasticities. Without discrimination and resale, low income countries as price-takers, face higher prices of pharmaceuticals than they alternatively would have. Common market nationals cannot be charged higher prices because of their nationality or country of residence, but discrimination according to some other criteria is permitted! Such direct segmentation price discrimination would enable low income countries to pay lower prices. Alternative bundling and marketing methods for pharmaceuticals may bring benefits for both consumers and producers. To circumvent the non- discrimination clause, instead of direct pricing, the industry needs to bundle the pharmaceuticals horizontally and vertically with other services to the point where no direct product costing may be established. The pay per cure reimbursement method guarantees efficient results, and new efficient therapies enable such policies. Differences in wages due to Balassa-Samuelson and Baumol-Bowen effects may mask the underlying direct segmentation discrimination. A cooperative approach of several smaller countries vs. the pharma industry and their common negotiation of prices may additionally provide for even lower costs. CONCLUSION: Third degree price discrimination requires the supplier to have enough market power to be able to set different prices to different groups of consumers as well as the ability to prevent resale. These practices are on the common market clearly prohibited. In the particular case of pharmaceuticals, a price discrimination of third degree is of interest to both pharmaceutical companies and national health providers. Competition and new pay-per- cure reimbursement methods reduce not only prices, but also its variance, reducing thereby the overall risk for the national health providers.

European Union; pricing; reimbursement policies; third degree price discrimination

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