Why the Private Sector should not be allowed to purchase the Covid-19 vaccine

2020 was definitely a year to forget with sickness, death, lockdowns, and uncertainty at the very forefront of society. 2021 looks to be brighter with the Covid-19 vaccine being rolled out. While most developed countries have been successful in securing vaccines, developing countries with limited budgets are struggling to acquire adequate doses for their citizens. To tackle this, some Asian countries’ governments are considering allowing the private sector to purchase the vaccine. Although this may appear to be a viable solution, this strategy may not be the best direction to take.

1. The inequity in the COVID-19 vaccine distribution

The general trend seems to be that developed nations are over-ordering vaccines for their eligibility.  So far, 53% of the best vaccines have been secured by developed countries, who only account for 14% of the world’s population[1]. In particular, the European Union has ordered 1.6 billion doses for 375 million people. Similarly, Canada has ordered 188 million full vaccinations for adults even though its eligible population is only 32 million[2]. In Australia, the government has held the right to access over 134 million doses[3]. With the current supply limitation, it is no surprise that many developing nations are struggling to acquire the vaccine in the early stages. Therefore, they are forced to resort to a different approach.

2. Asia: The idea of allowing private companies to purchase the doses

There is a large debate on whether private companies should be allowed to buy the vaccines, especially for those countries that have been hit hard by the pandemic. In Indonesia, businesses will be allowed to buy the vaccines along with the government. According to the Indonesian Chamber of Commerce and Industry, there have been more than 5,000 firms registering to purchase the vaccines[4]. Similarly, the Thai government gave a green light for the private sector to participate in the vaccine scheme, with private hospitals and pharmaceutical producers being the two most active sectors in seeking approval[5]. On the surface, this strategy sounds effective with more resources on hand allowing for more people to be vaccinated in a shorter time period. However, when we take a closer look, the approach may have some potential drawbacks.

3. The major drawbacks of private purchases

3.1 The profit-maximizing preference of the private sector over social benefits

Private companies are widely known for prioritizing profit. With the current limited supply and high demand, the firms that possess the doses will enjoy some level of market power. Therefore, they can raise the price to increase their profits. As a result, people on lower incomes may have difficulty affording the vaccine resulting in inadequate vaccine coverage in low-income communities.

3.2 What if their profit-maximizing nature is eliminated?

Assume any profit-maximizing incentives are abolished, the vaccine is a necessary good which renders its demand relatively price inelastic. Similarly, the supply is considered inelastic in the early stages. Therefore, both supply and demand curves are relatively steep. Following the basic economic theory, any change in non-price factors will shift the demand curve[6]. In the context of the Covid-19 vaccine market, these private companies would only be purchasing vaccine doses rather than manufacturing them, hence, only the demand curve would shift while the supply curve would remain static. As a result, while this will indeed increase the quantity supplied, it will also cause a disproportionate increase in price, making the vaccine more inaccessible for low-income communities.

4. What is the alternative solution?

Instead of allowing the private sector to purchase vaccines, businesses should get the doses through the government. That is, only the authority has the right to buy the vaccine, which can help them maintain the bargaining power to keep prices affordable and quantities stable[7] . There are some countries which are currently working on this approach, one being Malaysia. All private companies wanting to buy the vaccine have to register with the government[8].

Conclusion

Considering the potential disadvantages of allowing the private sector to buy the Covid-19 vaccine, the government should require businesses to register with them for the doses. Though this strategy can delay the vaccination rollout plan, it seems to be the best strategy at present.

[1] Bhutto, F. (2021, March 17). The world’s richest countries are hoarding vaccines. This is morally indefensible. Retrieved from https://www.theguardian.com/commentisfree/2021/mar/17/rich-countries-hoarding-vaccines-us-eu-africa

[2] Cohen, R. (2021). COVID vaccines: rich countries have bought more than they need – here’s how they could be redistributed. Retrieved from https://theconversation.com/covid-vaccines-rich-countries-have-bought-more-than-they-need-heres-how-they-could-be-redistributed-153732

[3] Hunt, G. (2020). Australia secures a further 50 million doses of COVID-19 vaccine [Press release]. Retrieved from https://www.health.gov.au/ministers/the-hon-greg-hunt-mp/media/australia-secures-a-further-50-million-doses-of-covid-19-vaccine#:~:text=Prime%20Minister%20Scott%20Morrison%20said,and%20over%20134%20million%20doses.

[4] Widadio, N. A. (2021). Indonesia: Firms allowed to buy vaccines for employees. Retrieved from https://www.aa.com.tr/en/asia-pacific/indonesia-firms-allowed-to-buy-vaccines-for-employees/2149386

[5] Phoonphongphiphat, A. (2021). Thai businesses to offer COVID shots to wealthy and companies. Retrieved from https://asia.nikkei.com/Spotlight/Coronavirus/COVID-vaccines/Thai-businesses-to-offer-COVID-shots-to-wealthy-and-companies

[6] Hirschey, M., & Bentzen, E. (2016). Managerial economics, 14th: Cengage Learning EMEA.

[7] Mintzes, B., Lexchin, J., Chiu, K., & Wang, Z. J. (2020, November 18). You may be able to buy a COVID vaccine ahead of the government rollout. But jumping the queue comes at a price. Retrieved from https://theconversation.com/you-may-be-able-to-buy-a-covid-vaccine-ahead-of-the-government-rollout-but-jumping-the-queue-comes-at-a-price-149972

[8] Potential purchase of COVID-19 vaccine by private sector ‘on our radar’: Malaysian official. (2021, March 6). Retrieved from https://www.channelnewsasia.com/news/asia/potential-purchase-covid-19-vaccine-private-sector-malaysia-14349566