Question

Why might the government be willing to grant (and allow to remain in place) a patent to HealthR-Us, despite the dead weight loss and the ensuring monopoly profits caused by such a patent? Explain your answer. For simplicity assume the vaccine is only relevant for the domestic market (i.e., there is no global market for vaccines).

Answer 1

Despite making the market monopolist and creating deadweight loss, the government will be willing to grant a patent to the company in order to incentivize it for the efforts and R&D it has undertaken to come up with the innovative vaccine.

Since the company invested huge of its resources and assets in the vaccine development, it is the government's duty to incentivize it for the development by granting it a patent and let the firm enjoy excessive monopoly profits for some time (till the patent expires).