Why not have a single price, lower in the short run but higher than the long-run price?
The price of a vaccine needs to do two things: it needs to provide a return to the manufacturer, and it needs to ensure that the vaccine is bought by consumers for whom it is worth the price. To pay the manufacturer for their R&D investment, the price has to be above the marginal cost of production. But prices above the marginal cost inefficiently exclude some consumers who could benefit from the vaccine but cannot afford that price. The advance market commitment solves this by allowing the purchaser to buy at a low price close to marginal cost, and using the guaranteed top-up from sponsors to recompense the vaccine developer for their investment. After the developer has been paid for their investment, it is efficient for the price to be set at marginal cost of production. The two stage price is therefore the most efficient way to ensure maximum access to the vaccine, while providing a return to the vaccine developer.
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- Why not have a single price, lower in the short run but higher than the long-run price?
