Price discrimination and bargaining power in the global vaccine market

Abstract

Since the 1980s, the market structure of vaccines has become increasingly oligopolistic, and in some cases, monopolistic. Alongside these supply trends, we see the emergence and growth of group procurement schemes on the demand side of the market. National governments and international organizations procure vaccines on behalf of end users. Two such organizations include the UNICEF Supply Division and the PAHO EPI Revolving Fund, for which participation is based on income or geography. Consistent with one of the main goals of group procurement, these groups obtain price discounts on vaccines relative to the private sector. This paper seeks to disentangle two possible explanations for this observed price dispersion using vaccine price data over the years 2002-2012 from UNICEF, PAHO, and the U.S. The two explanations are that of price discrimination and bargaining power. Using proxy variables in a fixed eff ects model, I find that price discrimination does have a signifi cant impact on price discount. I also fi nd support for a bargaining power e ffect, however, with less certainty, and the existence of supply constraints. These fi ndings have important policy implications for national governments, as well as procurement groups.