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Tuesday, November 08, 2005

Vaccines & the Heavy Hand

Russell Roberts comments on an article in the Wall Street Journal. The article was examining the making of vaccines in the United States and apparently asked the following question:
"How is it that the U.S., known for its prowess in producing lifesaving drugs and boasting an industry with a stock-market value in the hundreds of billions of dollars, doesn't have the medicine necessary to protect itself from these public-health threats?"
Russell Roberts provides the answer:
"So government purchases and pricing has destroyed the profitability of making vaccines. Government policy reduced the incentive to be in the vaccine business. Wyeth's decision to stop producing vaccines wasn't caused by market forces. It was caused by the interruption of market forces."
Yes, indeed.

I've often suggested that when you hear about a "shortage" of something, you should first suspect not that the invisible hand in involved, but rather that the HEAVY HAND of government in involved.

The government does control the market in some sense, with the purchase of 60% of the stock. Why is the producer not able to keep the price higher when it sells to the government? If the producer charged the government more it would entise more firms to enter the market. I see a huge dissconnect in the efficiency model. The government is purchasing the vaccine for below market price, this is great. The issue would then, I believe, shift to the supplier. Why would it continually sell at a low price?
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