Centers for Disease Control and Prevention as a Strategic Agent in the Pediatric Vaccine Market: An Analytical Approach

Problem definition : Pediatric vaccine markets in the United States are vulnerable to the development of monopolies due to few manufacturers and high research and development costs. This work addresses how the government can ensure the cost-effective procurement of pediatric vaccines by all U.S. children from private manufacturers. The Centers for Disease Control and Prevention’s (CDC) significant patronage of pediatric vaccines affords them leverage in negotiating public-sector prices that prevent the formation of monopolies, but existing vaccine pricing literature excludes the CDC as a rational player. Academic/practical relevance : We combine optimization and game theoretic techniques to address cost-effective immunization of all U.S. children. Methodology : Our optimization model from the CDC’s perspective minimizes negotiated government costs while ensuring adequate national vaccination levels, linking dynamics in public and private sectors, and incorporating competitive manufacturer behavior. The optimization model embeds an extant game theoretic price model to capture competitive interactions among manufacturers in the private sector, where they compete independently of the CDC. The model is validated in an extended case study of the Infanrix–Daptacel vaccine duopoly. Results : The study indicates that dissimilar products advantageously segment markets with asymmetric manufacturers. Furthermore, markets are at lower risk when high-capacity manufacturers have moderate target profits, especially in cases of high demand and asymmetry. We demonstrate that our model can help restabilize a market that experiences a vaccine shortage and that the CDC might mitigate the same shortage using strategies that depend on which manufacturer is limited. We also underline scenarios in which the CDC may be able to prevent monopolies through financial incentives to manufacturers. The results support a paradigm shift from annual contracts to ongoing negotiations, which would enable the CDC to exercise control over high-risk markets. Managerial implications : Our study demonstrates an analytical approach for managerial government officials to influence pediatric vaccine prices via the procurement of public-sector goods.