Improving consumer welfare in vaccine market: Pricing, government subsidies and consumer awareness

In practice, governments are commonly witnessed to offer subsidies in vaccine market to reduce vaccination costs for a specific infectious disease. To study governments’ optimal subsidy program, we develop a game-theoretic model with a manufacturer supplying vaccines and a government offering public subsidies. In the model, we consider two typical vaccine price settings, namely, government-led and manufacturer-determined prices, in which the government’s objective is to maximize consumer welfare. Important elements, such as consumer awareness and consumer-perceived quality, are involved, which indicates that the consumers may be informed or uninformed of the benefits of the vaccine. We show that the government should publicize the benefits of the vaccine to raise the awareness level of consumers, which helps improve consumer welfare and increase the vaccination rate. Under a fixed subsidy program, we show that the government will subsidize the consumers rather than the vaccine manufacturer. It is optimal for the government to offer subsidies for both the informed and uninformed consumers (only the informed consumers) when the awareness level is substantially low (high), regardless of with government-led or manufacturer-determined vaccine price. In addition, we discuss the situations in which the government aims to maximize social welfare or vaccination rate, and demonstrate that the equilibrium is identical with that when maximizing consumer welfare.