The concept of tiered pricing involves charging lower prices for medicine to developing countries based on the income level compared to that of an industrialized country (Moon, Jambert, Childs, von Schoen-Angerer, 2011). With this approach, manufactures charge higher prices to wealthier countries and less to poorer countries for the same product e.g. medicine, vaccines, drugs. (WHO, 2010). The goal is to give nations that normally would not be able to afford these drugs the opportunity to have them based on ability to pay (WHO, 2010). The cost for production of drugs will affect the price of that drug, and manufactures may not gain profit by charging less (Berkley, 2014). However, manufacturers can recuperate cost by charging wealthier countries more than poorer countries (WHO, 2010).
In 2000, the GAVI alliance was created to help low-income countries obtain newer vaccines, which are usually expensive to produce and unaffordable to developing countries (Berkley, 2014). More commonly, production of these drugs-vaccines namely-are offered by a single company, who can control the price of the drugs because of the lack of competition (WHO, 2010). This has caused a conflict with tiered pricing. Companies can set cost how they see fit because there are no other products on the market at that time (WHO, 2014). As more manufacturers enter the scene and produce the same product, the prices for that product tend to drop (WHO, 2010).
To make the idea of charging less for drugs, companies are offered incentives such as commitment purchasing and contracts where the company would be the sole provider of that drug for a duration of time (Berkley, 2014). Also, donors are important to keep the prices low for countries that would not be able to afford them otherwise To make the idea of charging less for drugs, companies are offered incentives such as commitment purchasing and contracts where the company would be the sole provider of that drug for a duration of time (Berkley, 2014).
Manufacturers use different criteria to determine what country is deemed low-income, thus charging different prices based on different criteria Moon et al., 2011). Some companies follow the World Bank income classifications based on per capita (low, lower-middle, upper-middle, and high-income) (Moon et al., 2011). Others use development indicators, such as the UN-selected least developed countries or the UN Development Programme's Human Development Index Finally, some companies offer their lowest prices, irrespective
