Healthy Skepticism Library item: 17274

Warning: This library includes all items relevant to health product marketing that we are aware of regardless of quality. Often we do not agree with all or part of the contents.

Publication type: Report

Troesken W & NBER
The Elasticity of Demand With Respect to Product Failures; or Why the Market for Quack Medicines Flourished for More Than 150 Years
The National Bureau of Economic Research 2010 Jan
http://www.nber.org/papers/w15699

Abstract:

Between 1810 and 1939, real per capita spending on patent medicines grew by a factor of 114; real per capita GDP by a factor of 5. The long-term growth and survival this industry is puzzling when juxtaposed with standard historical accounts, which typically portray patent medicines as quack medicines. This paper argues that patent medicines were distinguished from other products by an unusually low elasticity of demand with respect to product failure. While consumers in other markets stopped searching for a viable product after a few failed attempts, consumers of patent medicines kept trying different products, irrespective of the number of failed medicines they observed. The market expanded as the stock of people buying potential cures accumulated over time. Because no one was ever cured and consumers possessed a highly inelastic demand with respect to product failures, demand was unrelenting. In short, patent medicines flourished not despite their dubious medicinal qualities, but because of them. There is also evidence that genuine medical advances, such as the rise of the germ theory of disease and new therapeutic interventions, helped expand the market for quack medicines.