· Describe the nature of providing medicines to emerging markets at an affordable price without compromising profits· Research and thoroughly analyze the effectiveness of a proposed policy response to this problem .Introduction1 2001 saw a flurry of events, as highlighted in the case study examples, that raised the international community's awareness of the inequality between rich and poor nations in the care and treatment of people living with HIV/AIDS.2 Epitomized by the lawsuit against the South African government, pharmaceutical companies "desperately want to be seen as helping to combat the global AIDS crisis... but the companies also remain steadfast in their defense of patents, even if that means suing poor nations that want to make or buy illegal generics because they can't afford brand-name drugs." The episode represents not only a "moral scandal", but also a great economic, political and social challenge. Is it possible to meet the needs of the poor through greater access to medicines, without necessarily damaging the profits of pharmaceutical companies? Past Trends and New Developments3 The following table summarizes price changes for brand-name and generic drugs from 2000 to 2001 (IAEN). Patents and Monopoly Power4 The prices charged by pharmaceutical companies for patented drugs are generally several orders of magnitude higher than their marginal cost (the cost of producing an additional unit of the drug). For innovative products such as antiretrovirals, private companies legitimately need to recoup high overall research and development costs and meet regulatory prerequisites for market approval in high-income countries. This gives “temporary monopoly power” to the patent holder and creates socially useful long-term incentives for continued research and development.5 However, actual production costs are low. The low marginal costs explain why generic drug manufacturers are able to offer substitutes for branded products at relatively low prices as soon as they do not have to pay royalties to patent holders. This was the case in Brazil, where the domestic industry produced cheaper generic drugs and delivered them free of charge to HIV patients. In a perfectly competitive market, where consumers would automatically purchase a substitute good if its price was lower, international drug prices would spontaneously tend to be based on this marginal cost. Demand for the branded drug will be reduced (and become more elastic) as substitutes are introduced.6 However, the international market for branded antiretroviral products is characterized by imperfect competition, i.e. a limited number of companies supply a limited number of products.