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Monopoly pricing with negative network effects: the case of vaccines

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  • Kessing, Sebastian
  • Nuscheler, Robert

Abstract

We study the market for vaccinations considering income heterogeneity on the demand side and monopoly power on the supply side. A monopolist has an incentive to exploit the external effect of vaccinations and leave the poor susceptible in order to increase the willingness to pay of the rich. Even the possibility to perfectly price discriminate does not remove this incentive. Pigouvian subsidies may even make things worse. Mandatory vaccination programs covering only the poor succeed in eradicating the disease. This offers an efficiency based rationale for distribution-oriented national or international public health interventions. -- Wir untersuchen den Markt für Impfstoffe, wobei wir Einkommensungleichheit auf der Nachfrageseite und Monopolmacht auf der Angebotsseite unterstellen. Ein Monopolist hat den Anreiz, den externen Effekt von Impfungen auszunutzen. So wird er die Armen strategisch ungeimpft lassen, um die Zahlungsbereitschaft der Reichen zu erhöhen. Selbst für den Fall der perfekten Preisdiskriminierung bleibt dieser Anreiz bestehen. Pigou Subventionen können das Marktergebnis noch verschlechtern. Staatliche Impfprogramme, die nur die Armen abdecken, können die Krankheit auslöschen. Dies liefert eine effizienzbasierte Begründung für verteilungsorientierte nationale wie internationale Interventionen in den Impfmarkt.

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Bibliographic Info

Paper provided by Social Science Research Center Berlin (WZB) in its series Discussion Papers, Research Unit: Market Processes and Governance with number SP II 2003-06.

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Date of creation: 2003
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Handle: RePEc:zbw:wzbmpg:spii200306

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Keywords: Vaccination; monopoly pricing; price discrimination; negative network effects; Pigouvian subsidies; mandatory vaccination programs;

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References

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  1. Tomas Philipson & Stephane Mechoulan, 2003. "Intellectual Property & External Consumption Effects: Generalizations from Pharmaceutical Markets," NBER Working Papers 9598, National Bureau of Economic Research, Inc.
  2. Luis Cabral & David Salant & Glenn Woroch, 1994. "Monopoly Pricing With Network Externalities," Industrial Organization 9411003, EconWPA.
  3. Kessing, Sebastian G. & Nuscheler, Robert, 2006. "Monopoly pricing with negative network effects: The case of vaccines," European Economic Review, Elsevier, vol. 50(4), pages 1061-1069, May.
  4. Bensaid, Bernard & Lesne, Jean-Philippe, 1996. "Dynamic monopoly pricing with network externalities," International Journal of Industrial Organization, Elsevier, vol. 14(6), pages 837-855, October.
  5. Geoffard, Pierre-Yves & Philipson, Tomas, 1997. "Disease Eradication: Private versus Public Vaccination," American Economic Review, American Economic Association, vol. 87(1), pages 222-30, March.
  6. Michael Kremer, 2002. "Pharmaceuticals and the Developing World," Journal of Economic Perspectives, American Economic Association, vol. 16(4), pages 67-90, Fall.
  7. Tomas Philipson, 1999. "Economic Epidemiology and Infectious Diseases," NBER Working Papers 7037, National Bureau of Economic Research, Inc.
  8. Brito, Dagobert L. & Sheshinski, Eytan & Intriligator, Michael D., 1991. "Externalities and compulsary vaccinations," Journal of Public Economics, Elsevier, vol. 45(1), pages 69-90, June.
  9. Francis, Peter J., 1997. "Dynamic epidemiology and the market for vaccinations," Journal of Public Economics, Elsevier, vol. 63(3), pages 383-406, February.
  10. Tomas Philipson, 1996. "Private Vaccination and Public Health: An Empirical Examination for U.S. Measles," Journal of Human Resources, University of Wisconsin Press, vol. 31(3), pages 611-630.
  11. Mason, Robin, 2000. "Network externalities and the Coase conjecture," European Economic Review, Elsevier, vol. 44(10), pages 1981-1992, December.
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Cited by:
  1. Sääskilahti, Pekka, 2007. "Monopoly pricing of social goods," MPRA Paper 3526, University Library of Munich, Germany.
  2. Kessing, Sebastian G. & Nuscheler, Robert, 2006. "Monopoly pricing with negative network effects: The case of vaccines," European Economic Review, Elsevier, vol. 50(4), pages 1061-1069, May.
  3. Nicolas Houy, 2013. "Are better vaccines really better? The case of a simple stochastic epidemic SIR model," Economics Bulletin, AccessEcon, vol. 33(1), pages 207-216.
  4. Stéphane Mechoulan, 2005. "Market Structure and Communicable Diseases," Working Papers tecipa-241, University of Toronto, Department of Economics.
  5. Herrmann, Markus, 2010. "Monopoly pricing of an antibiotic subject to bacterial resistance," Journal of Health Economics, Elsevier, vol. 29(1), pages 137-150, January.
  6. Michael Kremer, Christopher M. Snyder, 2013. "When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity-Working Paper 334," Working Papers 334, Center for Global Development.
  7. Markus Herrmann, 2009. "Monopoly Pricing of an Antibiotic Subject to Bacterial Resistance," Cahiers de recherche 0946, CIRPEE.
  8. Na Hao & Gervan Fearon, 2009. "Government Funding Policy Towards Communicable Diseases," Atlantic Economic Journal, International Atlantic Economic Society, vol. 37(2), pages 121-134, June.

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