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

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Sarang Deo & Charles J. Corbett, 2009. "Cournot Competition Under Yield Uncertainty: The Case of the U.S. Influenza Vaccine Market," Manufacturing & Service Operations Management, INFORMS, vol. 11(4), pages 563-576, July.
  • Handle: RePEc:inm:ormsom:v:11:y:2009:i:4:p:563-576
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    File URL: http://dx.doi.org/10.1287/msom.1080.0242
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    References listed on IDEAS

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    1. Janssen, Maarten & Rasmusen, Eric, 2002. "Bertrand Competition under Uncertainty," Journal of Industrial Economics, Wiley Blackwell, vol. 50(1), pages 11-21, March.
    2. 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.
    3. Ravi Anupindi & Ram Akella, 1993. "Diversification Under Supply Uncertainty," Management Science, INFORMS, vol. 39(8), pages 944-963, August.
    4. 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.
    5. 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.
    6. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kenan Arifoglu & Sarang Deo & Seyed M. R. Iravani, 2012. "Consumption Externality and Yield Uncertainty in the Influenza Vaccine Supply Chain: Interventions in Demand and Supply Sides," Management Science, INFORMS, vol. 58(6), pages 1072-1091, June.
    2. Bian, Junsong & Guo, Xiaolei & Li, Kevin W., 2015. "Distribution channel strategies in a mixed market," International Journal of Production Economics, Elsevier, vol. 162(C), pages 13-24.
    3. Kebing Chen & Renxing Xu & Hanwei Fang, 2016. "Information Disclosure Model Under Supply Chain Competition with Asymmetric Demand Disruption," Asia-Pacific Journal of Operational Research (APJOR), World Scientific Publishing Co. Pte. Ltd., vol. 33(06), pages 1-35, December.
    4. Soo-Haeng Cho, 2010. "The Optimal Composition of Influenza Vaccines Subject to Random Production Yields," Manufacturing & Service Operations Management, INFORMS, vol. 12(2), pages 256-277, November.
    5. Duijzer, L.E. & van Jaarsveld, W.L. & Dekker, R., 2017. "Literature Review - the vaccine supply chain," Econometric Institute Research Papers EI2017-01, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
    6. Sammi Yu Tang & Panos Kouvelis, 2011. "Supplier Diversification Strategies in the Presence of Yield Uncertainty and Buyer Competition," Manufacturing & Service Operations Management, INFORMS, vol. 13(4), pages 439-451, October.
    7. repec:eee:ejores:v:265:y:2018:i:2:p:533-543 is not listed on IDEAS
    8. repec:eee:proeco:v:191:y:2017:i:c:p:311-322 is not listed on IDEAS
    9. Adida, Elodie & Dey, Debabrata & Mamani, Hamed, 2013. "Operational issues and network effects in vaccine markets," European Journal of Operational Research, Elsevier, vol. 231(2), pages 414-427.
    10. repec:eee:ejores:v:268:y:2018:i:1:p:174-192 is not listed on IDEAS
    11. Liu, Zugang (Leo) & Anderson, Trisha D. & Cruz, Jose M., 2012. "Consumer environmental awareness and competition in two-stage supply chains," European Journal of Operational Research, Elsevier, vol. 218(3), pages 602-613.
    12. Awi Federgruen & Nan Yang, 2009. "Competition Under Generalized Attraction Models: Applications to Quality Competition Under Yield Uncertainty," Management Science, INFORMS, vol. 55(12), pages 2028-2043, December.
    13. R. K. Jha & B. S. Sahay & P. Charan, 2016. "Healthcare operations management: a structured literature review," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 43(3), pages 259-279, September.
    14. repec:spr:ecogov:v:18:y:2017:i:3:d:10.1007_s10101-017-0190-z is not listed on IDEAS
    15. David F. Drake, 2011. "Carbon Tariffs: Impacts on Technology Choice, Regional Competitiveness, and Global Emissions," Harvard Business School Working Papers 12-029, Harvard Business School.
    16. Fang, Yaner & Shou, Biying, 2015. "Managing supply uncertainty under supply chain Cournot competition," European Journal of Operational Research, Elsevier, vol. 243(1), pages 156-176.
    17. Eskandarzadeh, Saman & Eshghi, Kourosh & Bahramgiri, Mohsen, 2016. "Risk shaping in production planning problem with pricing under random yield," European Journal of Operational Research, Elsevier, vol. 253(1), pages 108-120.
    18. Masoumi, Amir H. & Yu, Min & Nagurney, Anna, 2012. "A supply chain generalized network oligopoly model for pharmaceuticals under brand differentiation and perishability," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 762-780.

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