The Global Vaccine Shortage, Profit-Cap Policy and the Duopoly Rule

A known policy dilemma occurs between the need to curb extra-large profits by some industries, like pharmaceuticals, and the need to ensure the incentive to produce is not damaged. This paper shows that a profit cap, imposed via taxation on a group of firms, can simultaneously eliminate inefficiency and excess profit by intensifying competition among oligopolistic firms. The result has a direct bearing on policy debates on COVID-19 vaccine sharing and the use of vaccine donation as a ``humanitarian obligation,'' and, more generally, on the regulatory institutions needed for industries that rely on R&D