What impact would it have on firms’ incentives to set a lower price, for a higher quantity?
The combination of price and quantity (e.g. $15 for 200 millions immunized persons) that is chosen to deliver the intended market return (e.g. $3bn) should be determined by considering the amount of front-loading that the sponsors wish to offer. A more front-loaded offer (e.g. $20 per dose for 150 million immunized persons) would create greater incentives to produce a vaccine rapidly, but would lessen the incentives for development of subsequent improved vaccines. Conversely, a less front-loaded offer would make it easier for subsequent, superior products to earn a large return. The signals that the sponsors wish to send are reflected in the profile of the revenue stream that is created.
