Assessment 2

ANALYSIS OF PRICE
CONTROLS ON COVID-19
VACCINES

Name: Vo Thi Minh Y – 14007581

Subject Code: BU1003

Professor: Dr. Pengji Wang

(15 January 2021)

Table of Contents

I. INTRODUCTION..............................................................................................................1

II. BODY...............................................................................................................................1

1. The price elasticity of demand of COVID-19 vaccines..................................................................1

2. The price controls on COVID-19 vaccines........................................................................................2

3. The market structures of COVID-19 vaccines..............................................................................3

III. CONCLUSION.................................................................................................................4

IV. REFERENCES.................................................................................................................4
I. INTRODUCTION

Currently, there are two opinions about controlling vaccine prices in the market. On one hand,

people think that besides the safety and efficacy, the price of Covid-19 vaccine should be

affordable by everyone. On the other hand, others think that price control would have some

negative sides. In this essay, we are going to analyze the implication of price control on COVID-

19 vaccine market and, in addition, recommendations on how to improve the current situation.

II. BODY

1. The price elasticity of demand of COVID-19 vaccines

According to Gavi.org, in the fight against COVID-19, there are more than 170 different

vaccines with 4 categories of vaccines such as Whole Virus, Protein Subunit, Vital Vector and

Nucleic Acid (ARN and DNA). Moreover, some companies are collaborating to scale-up their

production facilities, for example, Moderna with Lonza, BioNTech with Pfizer, etc. This product

is necessary because everyone needs to be virus free and people will pay even if the prices are

high, resulting in relatively inelastic demand. Even substantial increases in prices would not

much change the quantity consumers are willing to purchase. This is due to the lack of substitutes

for vaccines and the growing need for this product in the short run. The price of vaccines depends

on people’s income. For example, in the developed country, where the income is high, maybe it’s

not the issue, it would be less elastic. However, for those under the property line maybe it’s a big

issue, it would be more elastic. Ms. Claire Baudot- Advocacy Manager at Global Health

Advocates (GHA) France in Paris commented: “The current selling price is not related to the cost
but based on the solvency of each country”. In the short run, there would be no immediate

substitutes because every vaccine must undergo a trial before it is available in the market,

according to Timesofindia, so the price would be high. In the long run, the virus will mutate, and

then vaccines have to keep changing, more and more vaccines will be available, so the price

would be less expensive. According to Financial Times, Mr Gates said “I was hopeful in the long

term that competition would keep prices down”.

2. The price controls on COVID-19 vaccines

The lawmakers press to impose price control on any COVID-19 vaccines and treatments in

development. This measure is price ceiling because the vaccine might be too high for some

people. The price of vaccines is predicted to continue rising, while the quantity supply may not

be sufficient to support the demand. Ideally, the government should set a price ceiling to protect

the buyers. If price ceiling is binding, the final market price should be lower than equilibrium

price level (as shown in Figure 1).

 Price Supply
of
vaccin

Equilibrium
price
Binding price ceiling

Shortage
Demand

Quantity of
Q1 Qe Q2 vaccine

Figure 1. Price control on COVID-19 vaccines

This measure has side effects on both producers and consumers. For producers, they might

experience no incentive to produce or conduct further research as it will be costly. For

consumers, they couldn’t have immediate access to the vaccine and might be made to queue up

for the vaccine. Moreover, there could be such black market, consumers will suffer more because

they have to pay a much higher price. Figure 1 shows what would happen if the government

implemented a maximum price for vaccine covid-19. In this market, the quantity demanded and

supplied will be Qe at the equilibrium price of Pe. At the ceiling price, the quantity demanded

will land at Q2. Therefore, there will be a shortage of vaccines (QD>QS), when facing the

shortage, the sellers will try to push up the price but they cannot. At the end, the market price will

be the ceiling price.

3. The market structures of COVID-19 vaccines

In the short run, there will be such monopoly as shown in Figure 3 below. Monopoly is

when there is only one seller or supplier of the good or service (Steelman, 2005). This is because
 in the short run, we don't have many companies producing the vaccine, it takes time for the

suppliers to come out with the right vaccine. The impact on the market price is monopolistic

producers will have a greater ability to increase prices since they don’t face the full pressure of a

competitive market. According to Openmarketsinstitute, since 2010, the three American

manufacturers of the drug have all raised their prices by 168%, 169%, and 325%,

respectively. They would maximize profit by charging a high price and selling less products. To

facilitate the desired change in market condition or to reduce the power of monopoly (other than

price control), the government can subsidies for low- income people, which depends on the state

budget, allow the genetic medicine to be produced instead of only relying on this patent and

increase the supply.

Price Price

S
MC
Pmax

Pe

D
MR

Qe Quantity
Q max Quantity

Figure 3. Monopoly Figure 4. Perfect

competition
In the long run, there will be such competition as shown in Figure 4 above. In perfect

competition, there are many firms selling homogenous products with perfect knowledge and

perfect freedom of entry and exit from the industry (McConnell, 2008). After some time, there

will be more companies coming in, selling the vaccine, and then the market will become almost

close to the perfect competition. For example, according to Business Standard, Moderate Inc. said

it won’t enforce vaccine patents during the pandemic to allow other companies and countries to

make similar shots. Then, the market demand and supply will decide the equilibrium price level.

The equilibrium price of competition is much lower than the monopoly price level. And of

course, more vaccines will be produced as compared to this QM.

III. CONCLUSION

To sum up, this essay helps us have a better understanding about the implication of price control

on COVID-19 vaccine market by answering the questions about demand, supply, price control

and market structures as well as giving the recommendations for the government. As the outbreak

of COVID 19, producers are racing to develop safe and effective vaccines. However, the most

important thing is to ensure everyone can access vaccines and treatments for COVID-19. As Dr.

Tedros said in August, “No one is safe until everyone is safe.”

IV. REFERENCES
1. https://www.gavi.org/vaccineswork/there-are-four-types-covid-19-vaccines-heres-how-they-
work#:~:text=The%20four%20main%20types%20of,acid%20(RNA%20and%20DNA).
2. https://www.grandviewresearch.com/industry-analysis/covid-19-vaccines-market

3. https://www.washingtonpost.com/opinions/global-opinions/the-us-has-ensured-its-supplies-of-
coronavirus-vaccine-now-it-must-help-provide-them-to-poor-nations/2020/11/26/31b2a346-2f4d-
11eb-860d-f7999599cbc2_story.html

4. https://timesofindia.indiatimes.com/life-style/health-fitness/health-news/coronavirus-how-
long-does-it-really-take-to-get-a-vaccine-ready-we-explain-to-you-the-
process/photostory/76568808.cms?picid=76569573

5. https://www.openmarketsinstitute.org/learn/drug-prices-monopoly

6. https://www.business-standard.com/article/current-affairs/won-t-enforce-covid-vaccine-
patents-during-pandemic-says-moderna-120100900073_1.html