Drugs in countries like Tanzania are cheap because drug companies don’t think they can get more money out of it, it’s more of a charity project. They offer them to developing countries well below cost - Tanzania is the 15th poorest country in the world with a GDP per capita of $500 (2011). It’s not an example of a free market.
I'm not sure that's true. Most of the medication I came across came from third rate Russian or Indian suppliers. I highly doubt the sales of drugs from these countries (also poor countries) to another poor country (Tanzania) was charity.
It ain't a charity: after the initial development, drug production is usually very cheap.
Aligning prices with purchasing power allows pharmaceutical companies to get _something_ out of the markets they'd get nothing out of. And with large numbers, that something might turn out to be a bit more.
Third rate Indian suppliers? I’m not sure if you’re implying that the price is low or the quality is poor. If it’s the latter, you don’t know much about Indian pharma companies. Btw, Indian pharma companies selling high quality anti retro viral drugs to African countries at low prices is why HIV is relatively under control right now.
You need to distinguish between drug development and production.
Sure production cost is usually low and that technically allows to sell to poor countries essentially at cost plus a tiny margin.
But that's only half the story. Drugs need to be developed. From idea to market only a tiny fraction of medication makes it. You need studies ovet studies, and most of the time a drug does not make it through that process because it's ineffective or dangerous or both. The few that make it need to compensate for the cost of this process, not just their own but all of those that didn't make it.
So, in "rich" countries, a pill that costs $0.10 to produce can easily cost $1000. That's a necessity to finance the whole process of getting there.
After that is all done and established, sure, you may get that same pill for $1 since it's either that or no sale. But that does not mean the whole system would work for $1 per pill everywhere in the world. Then the pill would not exist in the first place.
See also: region locking in video games. Again, the development costs vastly outweigh the marginal cost of producing an extra unit to sell, so they sell the product at whatever the local market will bear, which breaks down if richer markets have access to supply from poorer ones.
