Pricing the COVID-19 Vaccine: A Mathematical Approach

TL;DR

This paper models the COVID-19 vaccine market using optimization and game theory to determine pricing strategies that balance affordability, demand, and manufacturer profits, informing policy decisions.

Contribution

It introduces a novel game-theoretic and optimization framework for vaccine pricing, considering high costs and public health goals.

Findings

Government negotiations can keep vaccine prices low while ensuring manufacturer profits.

Predicted vaccine prices align with media estimates.

The model accounts for high production and distribution costs.

Abstract

According to the World Health Organization, development of the COVID-19 vaccine is occurring in record time. Administration of the vaccine has started the same year as the declaration of the COVID-19 pandemic. The United Nations emphasized the importance of providing COVID-19 vaccines as "a global public good", which is accessible and affordable world-wide. Pricing the COVID-19 vaccines is a controversial topic. We use optimization and game theoretic approaches to model the COVID-19 U.S. vaccine market as a duopoly with two manufacturers Pfizer-BioNTech and Moderna. The results suggest that even in the context of very high production and distribution costs, the government can negotiate prices with the manufacturers to keep public sector prices as low as possible while meeting demand and ensuring each manufacturer earns a target profit. Furthermore, these prices are consistent with those currently predicted in the media.