12 January 2010

Price Discrimination

"What is price discrimination?

Price discrimination or yield management occurs when a firm charges a different price to different groups of consumers for an identical good or service, for reasons not associated with costs.

What happens if a company charges a different price for the same product but with a different label? This is an example of price discrimination, we see it all of the time.

In the pharmaceutical industry this is seen with generic drugs. The price of something is what you're prepared to pay for it: while the something, the product isn't only the product but the packaging and advertising associated with it.

Price discrimination describes the process of getting a greater penetration of the market and hence a greater profit for your product. This is done by discriminating the same product from itself by altering the packaging of the product, advertising the product in different ways and placing it in different retail outlet environments. By this process the price of something like aspirin can vary hugely; the difference in price reflecting the market that the product is satisfying.

All very interesting.

What happens when you have a product that is patent protected?

You can't differentiate between different aspects of the same product, as is done in generics, because everyone knows that there is only one supplier of the patent protected product. Because it is patent protected.

This leaves a huge untapped market. There is a large group of people who have a need, when talking about pharmaceuticals this is usually a desperate need, for the product but they have insufficient money. How do you tap into this market?

Why not counterfeit your own product?

How do you do this? Well, see above for generics. By having different, 1) labels (ie, get a 'not quite right label'); 2) retail outlets (ie, sell it on the internet); and, 3) advertising. Get some people arrested for counterfeiting your product - this leads to lots of publicity.

The above is a reflection of my thinking that led to the comment I made on pharmalot today ...

Sanofi-Aventis Cuts Prices In Southeast Asia

The drugmaker hopes to eventually boost sales and profits of various meds in the region ..”

I wonder if they will re-import some of these drugs back to the West as counterfeit products?

In this manner they can take advantage of the process of price discrimination and participate in a part of the market that they ordinarily wouldn’t be able to access."

Awaiting a reply from the EU Commission as to whether or not they are investigating this phenomenon.

14th March 2010. The EU (that is the Commission courtesy of Phil Lewis, p2) replied, "... the Commission is not empowered to investigate companies' or rights owner's use of their intellectual property rights."

In other words, no.

Meanwhile, Outlaw informs us that, "[t]he European Parliament has threatened to take the European Commission to the EU's highest court if it does not disclose the details of a secret international copyright treaty.

The Parliament has voted by an overwhelming majority to adopt a resolution demanding that the Commission limit the scope of the proposed treaty and inform it of its contents immediately.

The Anti-Counterfeiting Trade Agreement (ACTA) is a deal being negotiated by governments around the world outside of the confines of existing trade bodies such as the World Trade Organisation or the World Intellectual Property Organisation. The Commission is negotiating on behalf of the EU's 27 member states.

Secrecy has surrounded the two-year negotiations from the start and critics have alleged that figures from copyright-reliant industries such as music and film have been allowed to see more of the proposals than the citizens of the governments involved.

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