Socially responsible pricing: lessons from the pricing of AIDS drugs in developing countries

Vachani, S and Smith, N C (2004) Socially responsible pricing: lessons from the pricing of AIDS drugs in developing countries. Working Paper. London Business School nan.

Abstract

Corporate social responsibility (CSR) has major implications for pricing decisions in some markets. An extreme case is the pricing of lifesaving drugs in developing countries; industry critics have pointed to price as an obstacle to treatment and a factor in the deaths of millions of AIDS victims. This article examines socially responsible pricing in the form of differential pricing across markets taking into account ability to pay and social welfare. The implications of this remedy to the issue of access to drugs in developing countries are explored. Multinationals are criticized for profiting from developingcountry consumers. Our analysis demonstrates that, in fact, the high prices of AIDS drugs in developing countries suboptimized contribution earnings in those markets. Until the late 1990’s, multinationals could have earned greater contributions in developing countries by reducing prices, while also saving thousands of lives. However, that could have jeopardized earnings in developed countries, and this, together with other factors, created barriers to socially responsible pricing. Neither multinationals nor developingcountry governments can, alone, create conditions for socially responsible pricing to prevail. We identify the role of different players in addressing barriers to socially responsible pricing and moving prices of AIDS drugs to levels where significant proportions of consumers could afford them. These players included multinationals, governments, nongovernmental organizations, and multilateral institutions such as the World Trade Organization and the World Health Organization. This analysis highlights the challenges of “structural CSR”. We conclude by identifying other industries with characteristics similar to the drug industry where socially responsible pricing may be needed, and draw lessons for managers.