OBJECTIVES: Differential pricing (DPR) is based on the economic concept of price discrimination. DPR is reported as a potential effective way to: (1) Improve access to medicines in lower income countries whilst maintaining welfare in higher income countries; (2) Preserve incentives for R&D through higher prices in high income countries. This study aimed to assess the current situation of DPR for pharmaceuticals in the European Union (EU). METHODS: A literature review was conducted in MEDLINE®, WHO, OECD, and EU Commission websites, complemented by a grey literature search. Key DPR principles were identified and current implementation challenges in the EU were assessed. RESULTS: Ramsey (1927) developed a well-known DPR theory stating that prices should differ across markets according to inverse relation to demand elasticity, with more price-sensitive users, (i.e. lower income countries) charged at a lower price than less-price sensitive users. Another approach to DPR proposed by Danzon et al. (2013), called “value-based differential pricing”, would be to have prices reflecting utilization in each country. DPR is highly discussed among national/EU institutions and industry given the differences in GDP per capita and price levels of EU countries. However, several challenges were reported to limit DPR implementation: (1) DPR scheme is based on average per capita income; (2) Manufacturers attempt to apply higher price in low income markets and lower price in high income markets; (3) Differential distribution margins; (5) Risk of parallel trade; (6) Use of external reference pricing (ERP) where prices and undisclosed rebates in high income countries drive high prices in lower income countries. CONCLUSIONS: DPR is widely debated to enhance access to innovative expensive medicines in the low income market. However, DPR optimization requires wide coordination and interaction, between the countries and the industry to minimize various counteracting policies and initiatives.