Critique on Aids in Africa

There is one method of pricing called non-linear pricing, among many others. In this, the area below the demand curve (Y axis is Price$ and X axis represents Quantity demanded) is the contribution (after subtracting costs or expenses). For a price-demand combination we get a certain contribution, while the area above this rectangle is the “passed up profit” to customers and the area right of it is “money left on table”. When these areas are big, we call it inefficient market, so to capture it as much as possible, companies do customization of prices i.e. we have different prices to suit all different customers (based on their willingness to pay). This is the theory we all agree with, and practice too (in North America); then why not supply AIDS drugs at a lower price to Africa?

The issue isn’t that simple.

Typically relating our concern to AIDS drugs for Africa, would it benefit those who need it the most? Arbitrage remains a big possibility, not to forget the corruption, poor health care infrastructure, distribution network (lack of it), and theft on top of it to make the issue even more contentious. World Bank study found that, for every $100 that certain African Government spent on drugs, only $12 (1/8th) worth of medicine actually reached the patient.

“The patent system added the fuel of interest to the fire of genius” none other than US President Abraham Lincoln spoke these words. Patents enjoyed permanent inclusion in the laws of the US. Europe, Japan too protect patents and commensurately we see most of the inventions originating from these places, which in turn has elevated the quality of life all over the world, though others may lag behind these nations by a few or large number of years. Pharmaceutical companies pour billions of dollars (year 2000 estimate is $27B in US alone) into research for new drugs. It takes on an average $1B and 10 years to bring a new drug to market. Not to forget that only one compound succeeds out of 10,000 they begin with. Is there a bigger uncertainty than this in any of the businesses we know? Would any one do this without the incentive of recovering this cost and making some more money to keep going?

We talk about core competency in businesses. One should stick to things which he/she has competitive advantage in doing and leave other things for others to do (who in turn are better at doing that). That’s the mantra for survival in today’s fiercely competitive world. So why don’t we leave the issue of tackling AIDS drugs supply to governments. Let drug companies do the research which they are good at and