Price discrimination in Health Care

Dr KK Aggarwal and Professor Nitin Aggarwal

Price discrimination is a microeconomic pricing strategy where identical or largely similar goods or services are transacted at different prices by the same provider in different markets.

It is not same as product differentiation.

Price differentiation essentially relies on the variation in the customers' willingness to pay and in the elasticity of their demand.

The term differential pricing is also used to describe the practice of charging different prices to different buyers for the same quality and quantity of a product

•                    Personalized pricing (or first-degree price differentiation) : is selling to each customer at a different price or one-to-one marketing. It maximizes the price that each customer is willing to pay. It is usually done for selling devices to a hospital and from a hospital to the patient

•                    Product versioning (or second-degree price differentiation) is offering a product line by creating slightly different products for the purpose of price differentiation. Examples are strategies of shifting NLEM drugs to Non NLEM, selling a drug with new release technology etc.

•                    Group pricing (or third-degree price differentiation): dividing the market into segments and charging a different price to each segment (but the same price to each member of that segment). Typical examples include student discounts, seniors' discounts, rural discounts, institutional discounts, health days discounts.  

Ethical: if it is transparent and the benefit gores to the customer.

Unethical ?:  No benefit to the customer. Example, trade generic and brand generic where the MRP is same but the price to the retailer is markedly different.