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Abstract

This paper analyzes reasons advanced for the recent shortage of influenza vaccine in the United States and numerous other similar shortages in recent years. Explanations have included high regulatory costs, inadequate profitability, and mergers. Using Census data, it shows that vaccine producers realize unusually high price-cost margins, but are probably also unusually capital-intensive. Applying theories of scale economies to existing information, it identifies the extent to which, for diverse types of vaccines, economies of scale limit the number of vaccine producers, exposing the nation to stochastic shortage risk. A benefit/cost analysis explores whether it is economically worthwhile to maintain additional production sources with surge capacity. It is found that under plausible demand, external benefit, and stochastic supply failure conditions, such multiple sourcing yields more benefits than its cost. Copyright © 2007 John Wiley & Sons, Ltd.