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Monopoly pricing with negative network effects: the case of vaccines
[Monopolpreisbildung mit negativen Netzwerkeffekten am Beispiel von Impfstoffen]

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  • Kessing, Sebastian
  • Nuscheler, Robert

Abstract

We study the market for vaccinations considering income heterogeneity on the demand side and monopoly power on the supply side. A monopolist has an incentive to exploit the external effect of vaccinations and leave the poor susceptible in order to increase the willingness to pay of the rich. Even the possibility to perfectly price discriminate does not remove this incentive. Pigouvian subsidies may even make things worse. Mandatory vaccination programs covering only the poor succeed in eradicating the disease. This offers an efficiency based rationale for distribution-oriented national or international public health interventions.

Suggested Citation

  • Kessing, Sebastian & Nuscheler, Robert, 2003. "Monopoly pricing with negative network effects: the case of vaccines [Monopolpreisbildung mit negativen Netzwerkeffekten am Beispiel von Impfstoffen]," Discussion Papers, Research Unit: Market Processes and Governance SP II 2003-06, WZB Berlin Social Science Center.
    • Handle: RePEc:zbw:wzbmpg:spii200306
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Rikard Forslid & Mathias Herzing, 2015. "On the Optimal Production Capacity for Influenza Vaccine," Health Economics, John Wiley & Sons, Ltd., vol. 24(6), pages 726-741, June.
    2. Michael Kremer, Christopher M. Snyder & Christopher M. Snyder, 2013. "When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity - Working Paper 334," Working Papers 334, Center for Global Development.
    3. David E. Bloom & Michael Kuhn & Klaus Prettner, 2022. "Modern Infectious Diseases: Macroeconomic Impacts and Policy Responses," Journal of Economic Literature, American Economic Association, vol. 60(1), pages 85-131, March.
    4. Michael Kremer & Christopher M. Snyder, 2015. "Preventives Versus Treatments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 130(3), pages 1167-1239.
    5. Nicolas Houy, 2013. "Are better vaccines really better? The case of a simple stochastic epidemic SIR model," Economics Bulletin, AccessEcon, vol. 33(1), pages 207-216.
    6. Michael Kremer & Christopher Snyder, 2013. "When is Prevention More Profitable than Cure?," CID Working Papers 252, Center for International Development at Harvard University.
    7. Kessing, Sebastian G. & Nuscheler, Robert, 2006. "Monopoly pricing with negative network effects: The case of vaccines," European Economic Review, Elsevier, vol. 50(4), pages 1061-1069, May.
    8. Isabel Helmrath & Matthias Hunold & Johannes Muthers, 2022. "Joint procurement by heterogeneous buyers," Economics working papers 2022-14, Department of Economics, Johannes Kepler University Linz, Austria.
    9. Alexander E. Saak & David A. Hennessy, 2018. "A model of reporting and controlling outbreaks by public health agencies," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(1), pages 21-64, July.
    10. Herrmann, Markus, 2010. "Monopoly pricing of an antibiotic subject to bacterial resistance," Journal of Health Economics, Elsevier, vol. 29(1), pages 137-150, January.
    11. Stéphane Mechoulan, 2007. "Market structure and communicable diseases," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 40(2), pages 468-492, May.
    12. Proano, Ruben A. & Jacobson, Sheldon H. & Zhang, Wenbo, 2012. "Making combination vaccines more accessible to low-income countries: The antigen bundle pricing problem," Omega, Elsevier, vol. 40(1), pages 53-64, January.
    13. Pekka S��skilahti, 2015. "Monopoly Pricing of Social Goods," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 22(3), pages 429-448, November.
    14. Sumana Kundu & Rupayan Pal, 2024. "Individuals social concern, externalities and voluntary vaccination: Monopoly and first-best public policy," Indira Gandhi Institute of Development Research, Mumbai Working Papers 2024-023, Indira Gandhi Institute of Development Research, Mumbai, India.
    15. Amir, Rabah & Liu, Zhiwei & Tian, Jingwen, 2023. "Negative network effects and public policy in vaccine markets," Journal of Economic Behavior & Organization, Elsevier, vol. 216(C), pages 136-149.
    16. Michael Kremer & Christopher M. Snyder, 2013. "When Is Prevention More Profitable than Cure? The Impact of Time-Varying Consumer Heterogeneity," Working Paper 70726, Harvard University OpenScholar.
    17. Na Hao & Gervan Fearon, 2009. "Government Funding Policy Towards Communicable Diseases," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 37(2), pages 121-134, June.
    18. Kremer, Michael & Snyder, Christopher, 2015. "Vaccines vs. Preventives," CEPR Discussion Papers 10474, C.E.P.R. Discussion Papers.
    19. Terrence August & Tunay I. Tunca, 2006. "Network Software Security and User Incentives," Management Science, INFORMS, vol. 52(11), pages 1703-1720, November.
    20. Xu, Danni & Wang, Fan & Zhuo, Xiaopo & Liu, Yaoqi, 2024. "The performance of government subsidy schemes in a competitive vaccine market considering consumers' free-riding behavior," International Journal of Production Economics, Elsevier, vol. 268(C).

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    More about this item

    Keywords

    Vaccination; monopoly pricing; price discrimination; negative network effects; Pigouvian subsidies; mandatory vaccination programs;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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