Subsidizing the Distribution Channel: Donor Funding to Improve the Availability of Malaria Drugs

In countries that bear the heaviest burden of malaria, most patients seek medicine for the disease in the private sector. Because the availability and affordability of recommended malaria drugs provided by the private-sector distribution channel is poor, donors (e.g., the Global Fund) are devoting substantial resources to fund subsidies that encourage the channel to improve access to these drugs. A key question for a donor is whether it should subsidize the purchases and/or the sales of the private-sector distribution channel. We show that the donor should only subsidize purchases and should not subsidize sales. We characterize the robustness of this result to four key assumptions: the product's shelf life is long, the retailer has flexibility in setting the price, the retailer is the only level in the distribution channel, and retailers are homogeneous.

This paper was accepted by Martin Lariviere, operations management.