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 channel. We show that the donor should only subsidize purchases and should not subsidize sales. This result holds when the product life cycle is long, as is typical for malaria drugs. However, this result breaks when the product life cycle is short. Then, it is optimal to offer a sales subsidy (in addition to a purchase subsidy) if and only if customer heterogeneity and the donor’s budget are sufficiently large.
Key words: global health supply chains; developing country supply chains