Monopoly Pricing with Negative Network Effects: The Case of Vaccines

WZB, Markets and Political Economy Working Paper No. SP II 2003-06

24 Pages Posted: 30 Nov 2003

See all articles by Sebastian G. Kessing

Sebastian G. Kessing

Wissenschaftszentrum Berlin fuer Sozialforschung (WZB) - Market Processes and Governance; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Robert Nuscheler

Wissenschaftszentrum Berlin fuer Sozialforschung (WZB) - Market Processes and Governance

Date Written: June 2003

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.

Keywords: vaccination, monopoly pricing, price discrimination, negative network effects, Pigouvian subsidies, mandatory vaccination programs

JEL Classification: D42, D62, H23, I11, I18

Suggested Citation

Kessing, Sebastian G. and Nuscheler, Robert, Monopoly Pricing with Negative Network Effects: The Case of Vaccines (June 2003). WZB, Markets and Political Economy Working Paper No. SP II 2003-06, Available at SSRN: https://ssrn.com/abstract=473181 or http://dx.doi.org/10.2139/ssrn.473181

Sebastian G. Kessing (Contact Author)

Wissenschaftszentrum Berlin fuer Sozialforschung (WZB) - Market Processes and Governance ( email )

Reichpietschufer 50
D-10785 Berlin
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

Robert Nuscheler

Wissenschaftszentrum Berlin fuer Sozialforschung (WZB) - Market Processes and Governance ( email )

Reichpietschufer 50
D-10785 Berlin
Germany

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