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Cournot Competition Under Yield Uncertainty: The Case of the U.S. Influenza Vaccine Market

  • Sarang Deo

    ()

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60201)

  • Charles J. Corbett

    ()

    (Anderson School of Management, University of California, Los Angeles, Los Angeles, California 90095)

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    This paper is inspired by the recurring mismatch between demand and supply in the U.S. influenza vaccine market. Economic theory predicts that an oligopolistic market with unregulated but costly entry will experience excess entry and oversupply, not the undersupply observed in the market for influenza vaccine in recent years. In this paper, we examine the interaction between yield uncertainty, a key characteristic of many production processes, including that for influenza vaccine, and firms' strategic behavior. We find that yield uncertainty can contribute to a high degree of concentration in an industry and a reduction in the industry output and the expected consumer surplus in equilibrium. We use parameter values loosely based on the U.S. influenza vaccine market to numerically illustrate the impact of yield uncertainty.

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    File URL: http://dx.doi.org/10.1287/msom.1080.0242
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    Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

    Volume (Year): 11 (2009)
    Issue (Month): 4 (July)
    Pages: 563-576

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    Handle: RePEc:inm:ormsom:v:11:y:2009:i:4:p:563-576
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    1. F.M. Scherer, 2007. "An industrial organization perspective on the influenza vaccine shortage," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(4-5), pages 393-405.
    2. Ravi Anupindi & Ram Akella, 1993. "Diversification Under Supply Uncertainty," Management Science, INFORMS, vol. 39(8), pages 944-963, August.
    3. Janssen, Maarten & Rasmusen, Eric, 2002. "Bertrand Competition under Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 11-21, March.
    4. Anthony Creane, 2007. "Note on uncertainty and socially excessive entry," International Journal of Economic Theory, The International Society for Economic Theory, vol. 3(4), pages 329-334.
    5. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
    6. 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.
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