Assessment Task 3
Answer any FOUR of the following questions. Each question is worth a total of 12.5 marks. If more than four questions are answered, marks will be awarded for the first four answers only.
QUESTION 1
At the beginning of the flu season, Australians can purchase flu vaccinations from many different immunisation providers such as pharmacies, doctors’ practices and community health centres. A recent scientific study showed that getting a flu jab reduces both the chance of getting COVID-19 and COVID-19 symptoms. This welcome news has been widely reported in the newspapers. Examine the likely consequences in one or two related markets of your choice.
QUESTION 2
Governments generally want people to get immunised against the flu and other diseases such as COVID-19. Nonetheless many people refuse to take the vaccination jab, because they overestimate the likelihood of side effects, because they are complacent about getting infected. They also might not care or understand that their immunity protects others. Use the theories of market failure and government intervention to analyse the motives of government, the anti-vax phenomenon and their consequences. What, if anything should government do to make more people get vaccinated? What would be the problems with such interventions?
QUESTION 3
When COVID-19 stated spreading across the world, the race was on to develop vaccines as quickly as possible. Such research & development has a high fixed cost and can only be undertaken in industries with high market concentration where firms have significant monopoly power, like the pharmaceutical industry. Examine this industry using the theory and models of industry structure. Should government be worried about any aspect of how an industry with this market structure will perform?
QUESTION 4
Pfizer is one of the world’s largest pharmaceutical companies. Developing its COVID-19 vaccine is a costly, uncertain and complex process. This company would need to consider which parts of the vertical chain to outsource and which to conduct inhouse. Using the theory of the optimal boundary of the firm, discuss Pfizer’s make-or-buy decision for developing and producing its COVID vaccine. What stages of the vertical chain should Pfizer consider conducting inhouse, and which should be outsourced? Provide reasons for your findings.
QUESTION 5
Consider the following hypothetical case. Only Pfizer and a competitor, Astra-Zeneca, have the ability to develop a COVID-19 vaccine. Both have access to the same two promising vaccine technologies, but each company must choose one to invest in. While each firm could develop a vaccine on its own, the problem is that the fixed cost of production and risk are very high. They are therefore considering coordinating their actions through a strategic alliance where they join forces and share cost and revenue equally. Analyse the interaction between the two firms using game theory. Present a payoff matrix to model the situation and analyse it for Nash equilibrium. What can either of these firms do to make their best, most-preferred outcome more likely?