Economic Issues in Vaccine Purchase Arrangements

Abstract

Federal purchases of major childhood vaccines account for roughly half of the total market for these vaccines. This paper examines Federal purchasing practices in the context of the recent literature on bidding and procurement, and compares these practices to UNICEF vaccine procurement arrangements. Federal contracts were awarded to a single winner and the firms eligible to bid were limited in number (since the number of U.S. licensed firms is small). Since production capacity cannot be expanded quickly, and the Federal share of purchases is large, it is hypothesized that firms' bid prices will be higher for larger contracts. The paper analyzes contracts over the period 1977 through 1992 to determine the contract size-price relationship, as well as effects on contract prices of 1) the National Vaccine Injury Compensation Program enacted in 1987 and 2) changes in numbers of firms in the market. Results provide equivocal support for a positive size-price relationship and evidence of a positive price effect of the injury compensation program.