Explain why firms in the pharmaceutical industry can charge different prices for the same drug in different countries. (15 marks)

For the pharmaceutical company to successfully price discriminate; the market must be split into two- both which have a different PED for the drugs. Consumers with inelastic price elasticity for drugs are those who continue to purchase the product despite increased prices. This is most likely to reflect developed countries as its typical for high income earners to not be affected by changes in price for goods like drugs that are life determining- they would be willing to pay a high price for health. In the diagram, they are group B consumers. On the other hand, group A consumers who have an elastic demand for drugs are most likely it represent developing countries. They would be more sensitive changes in price for numerous reasons. Generally, developing countries consist of low income earners who would not be able to afford high priced drugs, therefore any increases in the price is likely to change demand for the good significantly. Also developing countries rely more on herbal remedies as a substitute for drugs to cure illnesses; this would make them very responsive to changes in the price of drugs, and lead to them having an elastic demand for medicine.