External economies of scale, government purchasing commitment and welfare improvements in the vaccines industry

Abstract

Some industries exhibit external economies of scale. In these cases, government intervention may generate increases of welfare through tax-subsidy programmes and advanced purchasing commitments. The issue is initially examined for the case of competitive markets in a long-run equilibrium. Then, taking the vaccines industry as an illustrative example, the paper proposes a suitable framework that is tailored to account for the most relevant characteristics of the real situation. The paper concludes advocating for intervention in competitive markets whenever economies of scale exist and implementing the policy is inexpensive.