Enhancing affordability and profit in a non-cooperative, coordinated, hypothetical pediatric vaccine market via sequential optimization

This study considers a hypothetical global pediatric vaccine market where multiple coordinating entities make optimal procurement decisions on behalf of countries with different purchasing power. Each entity aims to improve affordability for its countries while maintaining a profitable market for vaccine producers. This study analyzes the effect of several factors on affordability and profitability, including the number of non-cooperative coordinating entities making procuring decisions, the number of market segments in which countries are grouped for tiered pricing purposes, how producers recover fixed production costs, and the procuring order of the coordinating entities. The study relies on a framework where entities negotiate sequentially with vaccine producers using a three-stage optimization process that solves a MIP and two LP problems to determine the optimal procurement plans and prices per dose that maximize savings for the entities’ countries and profit for the vaccine producers. The study’s results challenge current vaccine market dynamics and contribute novel alternative strategies to orchestrate the interaction of buyers, producers, and coordinating entities for enhancing affordability in a non-cooperative market. Key results show that the order in which the coordinating entities negotiate with vaccine producers and how the latter recuperate their fixed cost investments can significantly affect profitability and affordability. Furthermore, low-income countries can meet their demands more affordably by procuring vaccines through tiered pricing via entities coordinating many market segments. In contrast, upper-middle and high-income countries increase their affordability by procuring through entities with fewer and more extensive market segments. A procurement order that prioritizes entities based on the descending income level of their countries offers higher opportunities to increase affordability and profit when producers offer volume discounts.