And if she had seen the Vioxx commercial would it have done any good?
I've seen the current Vioxx commercial (with an ice skater) quite a few times and until this article I had no idea what the stuff was. The words are something like "Vioxx---ask your doctor if it's right for you". That's it---nothing (at least to non-artistic little old me) that indicated a damn about arthritis.
My guess was that it was it was a new and improved herpes medicine.

By and large, a free society should not stand in the way of its citizens making their own choices. Our only legitimate concern is to ensure that companies tell the truth about their products and services.

The same also holds true for most illegal drugs. Our current drug laws are an abomination and result in much evil. We should rarely stand in the way of those who have decided to go to hell in a hand basket.

BRAD!! I know Jane Galt's secret ID is "out", but I don't think she wants it broadcast on a high profile site like yours.

"By and large, a free society should not stand in the way of its citizens making their own choices. Our only legitimate concern is to ensure that companies tell the truth about their products and services."

I fail to see how pharmaceutical advertising helps us citizens make our own choices.

Most of what I have seen has no informational content, and I have never deliberately made a choice based on such advertising -- although I am sure I have been influenced by it in ways I would rather not be influenced, such as the baseless reassurance that I associate, despite my best efforts, with brand-name familiarity.

I am one consumer who would like the choice of not seeing pharmaceutical advertising -- but even here across the border in Canada it is difficult to implement that choice without forgoing other things I enjoy.

It seems to me that the our "free" society is very selective about the choices it permits and the choices it blocks.

Maynard Handley:
" I've seen the current Vioxx commercial (with an ice skater) quite a few times and until this article I had no idea what the stuff was. "

The power of advertising: from the description I immediately identified this as 'that drug commercial with *Dorothy Hamill*'. I couldn't have told you the name of the drug.

“I fail to see how pharmaceutical advertising helps us citizens make our own choices.

Most of what I have seen has no informational content, and I have never deliberately made a choice based on such advertising --”

It seems that someone still has old copies of John Kenneth Galbraith’s works in their library. Should we take these advertisements with a grain of salt? Of course! Still, these marketing efforts assist us in knowing more about our available options. It’s up to us to learn more about the validity of the offer. Ralph Waldo Emerson made a total fool of himself when he said that one merely needed to build a better mouse trap. That is utterly ridiculous. You always have to sell your products and services. Waiting for someone to knock on your door will likely result in very few sales.

I see. We are supposed to sit in front of our televisions and get bombarded by these ads, and then after some suitable amount of time we march into our primary care physician and demand she writes a script based on our own incredibly scientific diagnosis informed by those commercials. And in this way marketing improves our health. Of course, if the doctor wasn't so darn stupid and watched those television ads for us, rather wait for ridiculous information like clinical comparative studies, this wouldn't be necessary.

Other that perhaps removing any shame element in using a medicine, there is never enough content in advertisements themselves to allow informed decision. As a starting point for seeking answers, fine.

The role of advertising is obviously an issue to which most of us (myself included) bring our political prejudices and beliefs. Now I'm not an economist, but perhaps there is a question that I can ask of the economists on this blog.

Can economics help us get beyond this rehashing of prior beliefs? The few economics textbooks I have looked at don't help much. For example, Tirole in The Theory of Industrial Organization spends a few pages on advertising, but the models he presents merely serve to formalize the consequences of a particular view of advertising's role. For example (p290): In this subsection, we assume that advertising conveys information on existence and price.... He mentions but does not address the question of what roles it does play.

So is economics limited to this? Making assumptions that beg the important questions and working out the consequences of those dubious assumptions? Or can someone point me to any work on identifying the roles advertising actually does play? Can we get anything empirical here, or should I just go back to mouthing my prejudices at David Thompson, who can recite his own back at me????

There are abundant studies to prove the efficacy of advertising. Human beings have limited time and unless you make the effort--they will learn virtually nothing about your products and services. However, advertising is an art and not a science. I am reminded of the sarcastic executive who once complained that half of his advertising was a waste of money. He simply didn’t know which half!

"Other that perhaps removing any shame element in using a medicine, there is never enough content in advertisements themselves to allow informed decision. As a starting point for seeking answers, fine."

That is absolutely correct. The advertisement should normally be your starting point to seek further answers. It is also, I might add, a dogma in advertising circles that a mediocre offering is more quickly relegated to the trash barrel by effective advertising. The vastly overrated John Kenneth Galbraith was simply wrong to argue that advertisers, in the long run, can deceive the typical consumer.

"It is also, I might add, a dogma in advertising circles that a mediocre offering is more quickly relegated to the trash barrel by effective advertising. The vastly overrated John Kenneth Galbraith was simply wrong to argue that advertisers, in the long run, can deceive the typical consumer."

A very strongly worded statement. Any proof to back it up?
A counter-example, for one, would be Brad's earlier point about diamonds---a ridiculous and purely artificial market, sustained solely by advertising.
A second point is that who cares about the long run? If a company can grab the money and run now, the long run is unimportant. After all, once you have burned enough people, you can simply do what all the cell phone companies did a few years ago and rename yourself, thus essentially wiping out all that bad will.

Referring derisively to John Kenneth Galbraith is not a sign of intelligence. . . .

"Referring derisively to John Kenneth Galbraith is not a sign of intelligence. . . ."

Gosh, I'm such a mean person. Somehow, though, I suspect that you do believe that referring derisively to Ludwig Von Mises is a sign of intelligence.

"If a company can grab the money and run now, the long run is unimportant."

You are not describing a business, but a criminal enterprise. It is the duty of government to arrest such folks. Didn't I previously mention that it is supposedly illegal to lie to consumers?

"A counter-example, for one, would be Brad's earlier point about diamonds---a ridiculous and purely artificial market, sustained solely by advertising."

Yup, and the leaders of the diamond industry would be indicted in the United States for price fixing and monopolistic practices. Bill Gates is a second rater next to these guys. Aren't you proud of being an American?

>> Referring derisively to John Kenneth Galbraith is not a sign of intelligence...<<

"I guess it is no secret that even John Kenneth Galbraith, still the public's idea of a great economist, looks to most serious economists like an intellectual dilettante who lacks the patience for hard thinking."
-- Paul Krugman
http://web.mit.edu/krugman/www/evolute.html

Galbraith is "an interestingly funny example, because he was never taken seriously by professional economists ... Like it or not, you wouldn't find Galbraith on a graduate-student reading list.... So I did not detect a lot of yearning to become the next Galbraith among PhD economists..."
- Paul Krugman
http://www.econ.duke.edu/~bancroft/154Home/Krugman_bio.PDF

>>> The vastly overrated John Kenneth Galbraith was simply wrong to argue that advertisers, in the long run, can deceive the typical consumer.<<<

>> A very strongly worded statement. Any proof to back it up? <<

From the Edsel to New Coke to Pets.com and the host of dot.bombs that believed they could take the market by spending their start-up capital on building brand names with Super Bowl TV ads and such. Take your pick. How many of the dot.bombs that took out Super Bowl ads do you remember?

>> A counter-example, for one, would be Brad's earlier point about diamonds -- a ridiculous and purely artificial market, sustained solely by advertising. <<

Bah! An artificial market sustained solely by the governments of diamond-producing contries that enforce a monopoly over supply with DeBeers, to obtain monopoly profits. How anyone can attribute the result of such govermental action to "advertising" is beyond me.

DeBeers doesn't even operate directly in the US, to stay beyond the reach of US anti-trust law, because its anti-competitive co-ordination is illegal here. But you can't sue foreign governments under US anti-trust law.

It seems to me that people on this comments page are looking at the issue of advertising from the perspective of "advertising vs. no advertising." From that perspective, as long as advertising does any good whatsoever for the economy, it's worth it to us, as a society, to have it.

It seems to me, though, that we should also take into account the oppurtunity cost of advertising. TV commercials mean less time for news, movies, or shows. Furthermore, those employed in the advertising industries of today (actors, script-writers, graphics designers, etc.) could be using their skills for applications such as art, writing scripts for movies, plays, or whatever, acting, and such. Given that advertising is about 1.1% of the U.S. GDP, that's a lot.

As for corporate gains from advertising, I can't imagine social benefits from that are as high as private benefits, given that advertising is largely competetive.

So it seems to me that whether advertising is a good thing depends on whether (consumer gains from advertising + that currently produced by people who would otherwise be writing columns, producing TV shows and movies, etc, to fill the gaps that would be left if advertising didn't exist + net corporate gains from advertising) - (consumer gains from reading more columns, seeing more TV shows, etc + that that would be produced by people currently working in advertising but who would otherwise be producing other stuff) is positive.

My prejudice is to say no, but I have little information on the topic.

Hmm... maybe advertisers trying to inform people about whether advertising is worth it or not should broadcast me something about whether advertising tends to increase or reduce social welfare.

Julian Elson

The issue of how DeBeers sustains high diamond prices is not the point. The point is how the demand, even at high diamond prices is maintained. I claim that this demand is purely through advertising, and the confused arguments above have done little to sway me of this claim.

As for
"
"If a company can grab the money and run now, the long run is unimportant."

You are not describing a business, but a criminal enterprise. It is the duty of government to arrest such folks. Didn't I previously mention that it is supposedly illegal to lie to consumers?
"

So you claim that the mendacious crap sold on late-night informercials represents a criminal enterprise? Eg, as a recent example, these gizmos that supposedly build up your muscles by giving them small electric shocks. Show me a case where the seller of one of these gizmos has faced CRIMINAL prosecution and gone to prison. Or do you believe that the claims in these ads are actually true?---placing you in the camp of deluded buyers and pretty much completely outside the camp of reputable scientists and doctors.

There are indeed a number of questionable informercials that legally push the envelope. Please note, however, that these ads are not permitted on the major networks. Your example is at most a good argument for our legislators to tighten up the laws. An occasional exception does not invalidate the general rule.

"Hmm... maybe advertisers trying to inform people about whether advertising is worth it or not should broadcast me something about whether advertising tends to increase or reduce social welfare."

Our democratic society has already answered this question in the affirmative. The vast majority of us feel far more comfortable with the current arrangement than handling over our decision making to a handful of elitist bureaucrats. Democracy is indeed yucky and rather disgusting, but the alternatives have proven far worse.

Uh... I'm not sure I understand what you're saying, David Thomson. Something accepted by a democratic society is always optimal?

It seems to me, then, that there's no need for any economic analysis of any kind, except for purely academic purposes: after all, if people already always arrive at the optimal solution through the democratic process, why bother debating these things? Just have your own personal opinion and vote on it, and everything will work out perfectly.

Julian Elson

“Uh... I'm not sure I understand what you're saying, David Thomson. Something accepted by a democratic society is always optimal?”

On the contrary, if the majority of people claim that 4+4=9 it doesn’t make it so. Democracy more often than not works, but it’s not perfect.

“It seems to me, then, that there's no need for any economic analysis of any kind, except for purely academic purposes: after all, if people already always arrive at the optimal solution through the democratic process, why bother debating these things? Just have your own personal opinion and vote on it, and everything will work out perfectly.”

You are definitely taking my comments out of context. Advertising is simply the art of making people aware of the seller’s offerings. These advertisers possess the right to promote their wares. The consumers then investigate to see if the offer is worthy of serious consideration. This works far better than having bureaucrats making the decisions for the general public. You might wish to describe this process as the consumer voting with their pocketbook. It’s really just that simple.

David Thomson wrote:

>>It seems that someone still has old copies of John Kenneth Galbraith’s works in their library<<

It seems that someone has an utterly unrealistic estimate of their own intellectual capacity, and indeed of the importance and relevance of their own opinion of John Galbraith. Krugman is in a position to have such an opinion (though he largely took it back and admitted he was wrong in a later exchange with James Galbraith). You are not.

Meanwhile, the Sage Thomson gives us the benefit of his years' experience in the ad industry:

>>It is also, I might add, a dogma in advertising circles that a mediocre offering is more quickly relegated to the trash barrel by effective advertising<<

No it isn't. It's a dogma in advertising that this particular canard is always raised by bad admen to try and save face after their bad campaign has bitten the dust.

For an example of a bad product saved by good branding and advertising, may I raise as exhibit A the case of Harley-Davidson? On the back of a product range of oversized and under-engineered tourers which have been comprehensively outperformed by the Japanese competition, this company manages to sell all manner of rubbish with a logo on it to people who apparently want to be associated with the general brand values of "not knowing anything about motorbikes" combined with "mild and repressed leather fetishism" and more than a touch of "plain and simple racism".

I never said anything about bureaucrats.

I suppose your question is "So you think advertising may not be socially efficient: what do you propose, government control of the economy?"

I suppose, to a certain extent, you're right that I don't have a fully fleshed out vision of what would support the media otherwise. In the case of print media, there are subscriptions, and consumers could always get their information from the equivalents of the Consumer Reports, finding information from sources whose role is to evaluate products, rather than praising them unequivocally (which is what advertisements do, like it or not). Of course, advertising is what companies choose to do, what media choose to accept, and what consumers to choose to read, and it would be stupid for, say, the government to ban advertising, or any individual company to stop doing it, or for a TV station to stop airing them. That doesn't mean that it's efficient, though.

As for broadcast media, that's a much thornier issue: I can't say I have an alternative to advertising. Broadcast media is basically a public good (no marginal cost, non-excludable), but the idea of media sources being dependent upon the government for funding is a VERY disturbing idea, as far as freedom of thought and all that stuff.

However, that doesn't mean that analysing the efficiency of advertising is a futile or worthless endeavor, since I can't think of any viable alternatives off of the top of my head. Considering that advertising causes -- for better or for worse -- the allocation of about $110 billion of our GDP, I think it's a pretty important question. Of course, maybe advertising really is an efficient, positive-sum game, and I am just too blind to see it, in which case I suppose it isn't really an important question after all.

Julian Elson

"That doesn't mean that it's efficient, though."

Yup, life sucks and then you die. You desire a utopian society. Unfortunately, human beings leave much to be desired. Should we perhaps replace them with robots? And I am also unable to "think of any viable alternatives off of the top of my head." Therefore, it appears that we are stuck with advertising. Now if we could only raise the I.Q. level of each and every person another two hundred points. That might take care of the problem.

Julian wrote:

>>As for broadcast media, that's a much thornier issue: I can't say I have an alternative to advertising. Broadcast media is basically a public good (no marginal cost, non-excludable), but the idea of media sources being dependent upon the government for funding is a VERY disturbing idea, as far as freedom of thought and all that stuff.<<

Have you considered the possibility of funding broadcast media through a single, hypothecated tax on television ownership? The British Broadcasting Corporation doesn't seem to do too badly.

By the way, if anyone's looking for a neoclassical theory of advertising, Gary Becker's is the best shot I've seen.

Interesting posting. Somewhat boring thread of comments though; usual suspects and all that.

Product information is clearly one of the numerous attributes that markets need to function well. Sellers often know substantially more about the products than the buyers.

This makes buyers approprately paranoid that the sellers will spin that knowledge in ways that disadvantage the them. The car company is hardly likely to tell you that 2% of this years cars are having paint problems, but they certainly know that.

On the other side, it makes the sellers peeved that they have high costs to communicate benefits. Google is great but it's ironic that the they are the biggest breakthru in making information accessible and they still have serious issues getting users aware of their offering.

Information problems create vast transaction costs. The moment I as a buyer
purchase the car, climb the learning curve of
a search engine, or take a drug I'm making a
very long term commitment [I love that business
modelling term "sticky"]. So I spend money or time to attack the information problem - costs
that in somecases are a very significant portion
of the overall cost of the transaction. Consider
the cost of Mom's doctor fees contrasted with her drug costs.

The doctor is a third solution to this problem.
In addition to buyers and sellers we also have third parties that can help. Consumer Reports, goverment testing, proffesionals, and commercial intermediaries [like J.D. Powers, or trade journals] are all examples. There is stuff to be found on extremely diffuse buyer side of things: word of mouth and the fun stuff happening in the
internet around product information like epinions, usenet, amazon reviews etc.

Trusted intermediaries - trust being the key thing that reputible buyers and sellers would like to encourage - strike me as a good thing. What I like about the story is that Mom went to and trusted her doctor - who we would like to believe is a proffesional that cares deeply about doing a good job about this very essoteric and complex topic.

The Internet is helping with the quantity of information problem. We are making some progess on the finding of information problem. Quality information remains a challenge.

I can't believe some of you guys are trying to reason with someone who thinks women wouldn't want diamonds if it weren't for advertising.

Why are the intangible and emotional benefits of using a product automatically inferior to the "objective" quality of a product? Both would seem to have value. Paul Z.'s post is right on target.

This discussion was prompted by an interesting comment on pharma advertising. The problem that pharma faces is that doctor's are frequently too busy to keep up on new studies and new products. Direct-to-consumer (DTC) advertising is a way to cut through the clutter of information that litters the landscape.

Here's another question those opposed to pharma DTC advertising need to answer: many afflictions and illnesses suffered by affluent people are chronic and/or not particularly serious. Those suffering from these ailments often neglect them and don't go to a doctor. So how do you motivate potential users of these drugs to actually make a doctor's appointment to go over a problem they've been experiencing. Answer: by advertising a cure for the problem.

In a broad sense, supporting restrictions on pharma advertising places too much emphasis on and gives too much responsibility to a professional gatekeeping class. But as laypeople become more educated and have more access to information, the role of the professional gatekeepers is by necessity going to be modified and become less authoritarian. And this is a good thing.

Boy, I can't imagine where anyone got the idea that mass-market demand for diamonds is a creation of advertising.

There's a curious point of difference here between the US and UK: in Britain, prescription-only medication cannot be advertised in newspapers, or on television or radio. There's wiggle-room (the tacit advertisement of Viagra with gummed postcards requesting 'information on men's health') but not much.

By contrast, I've noticed the gradual liberalisation of pharmaceutical advertising on American television, during my semi-frequent visits to the US over the last five years. From discreet 'ask your doctor' or 'check the advert in Men's Journal' to 'Get Your Happy Pills Now!!!' or a variation thereof.

Now, on the one hand, the internet has created a great resource for those in Britain who'd like a second opinion without asking their doctor outright; but I'm minded to prefer the advertising ban over here, simply because it suits the structure of the healthcare system better. On the other hand, if I were an American, paying silly money for my prescriptions, I'd be torn between the desire to pay more for a product that may work better, and the risk that the advertising climate creates the opportunity, as in other markets, to sell overpriced tat that people don't really need. Then again, the US market for self-medication and OTC quackery already fulfils that role rather well.

I've actually studied the first modern 'broadening' of healthcare, to paraphrase 'JT', which took place with the shift from professional, Latin treatises to populist English-language ones in around the 1720s. It created a huge market for the treatment of 'diseases of affluence', the conditions of those who were well enough to be able to afford long-term medical oversight. There are some parallels, I think, to the eighteenth-century cult of the spa and the 'nerve cure', and the modern pathologising and medication of conditions such as shyness, both of which were driven by huge marketing budgets. And while I'd like to believe that 'access to information' makes a difference, I find it hard to square 'information' with 'advertising' in its current form.

Isn't the problem that the mother didn't get an appointment with her doctor soon enough? My doctor knows all about Vioxx without any help from me or mass-market TV ads.

Well, I guess we've found out where someone would get the idea that mass-market demand for diamonds is a creation of advertising: by accepting at face value an ad agency's glowing report to its client about the effectiveness of its own campaign!

Really, you guys have got to stop projecting your own credulity onto others.

A few comments from a family physician: 1. Vioxx is a good drug. It's useful for acute pain as well as for osteoarthritis. But it's expensive.
2. Most US patients pay only a small percentage of the direct costs of their medicines. This fact, together with the monopoly-induced expense of newer drugs and the stimulation of demand from direct advertising, helps fuel drug-cost inflation. Are the marginal social benefits of direct advertising worth the marginal social costs? That's a question for you social science types.
3. Physician-patient discussions regarding optimum drug choice are complex. A long-term patient with a serious illness will almost always follow my prescribing recommendations, but a short-term healthy empowered HMO patient often will not. Doctors will sometimes cave in to unreasonable or marginally reasonable patient demands. This fact fuels drug-cost inflation.
4. Drug companies engage in despicable(ie profit-maximizing) practices. Example: Prilosec and Nexium are clinically interchangable, but Prilosec is going generic, so Nexium is the new Purple Pill. And drug reps' advertising to doctors is often misleading or inaccurate. If not for the free lunches and penlights, I probably wouldn't even listen to them.

Even those who favor pharmaceutical advertising will blanch at some of the stories we hear about what pharmaceutical companies spend to persuade doctors to write prescriptions.
The issue is not merely about advertising. In many cases the consumer is not the decision maker. There are all kinds of regulations on the different transactions involved in the provision of healthcare (medical insurance and medical practice and dispensing of drugs...each being regulated by entirely different authorities) In the light of that I think it is worth the while to discuss the merits of advertising such products.
If you believe in the principle of not regulating commercial advertising, should you not also believe in the principle of a free market (where if I wanted to, I shouldn't have to get a physician's permission to consume a particular product)? If we cannot trust consumers with making the right choice, then I think it entirely reasonable to question the merits of advertising directly to the consumers.

The only good case to be made for requiring a physician's permission to obtain a pharmaceutical is in the instance of antibiotics, where poor usage can affect the utility of the antibiotic for others. Doctor's should be paid for advice, not permission, and insurance markets function better when people better feel the economic difference between generic and patented drugs. Of course, attempting to determine exactly how much protection intellectual property should receive, in order to strike the optimum balance between innovation and competition, is an extremely difficult task, and one which most of us are ill-suited for. I wonder, does Prof. DeLong have any opinions as to who has produced interesting work on this subject? I know should google it myself, but damnit, sometimes I'm just too lazy.....

I don't actually have a very strong opinion about pharmaceutical advertising, but anyone who'd clicked through and read the comments would have learned that my mother did, in fact, consult a doctor, who told her to take aspirin and did not discuss the alternatives with her. If she had seen the Vioxx commercials, she might have asked about it.

My point was that every single time we talk about pharma advertising, I get people bringing up the same two damn drugs: Celebrex and Vioxx, and the patients who demand them. The consensus is generally that it's an obviously bad thing that patients hear about, and demand, these drugs, with the doctors on the site loudly proclaiming that they're "no better than aspirin". On the one hand, I'm sympathetic, because I find it all too believable that idiots demand things they don't need and shouldn't have. On the other hand, I'm not too sympathetic, because the list of things that doctors prescribe rather than argue with their patients is much longer than the list of commercially advertised drugs. I think that until doctors are willing to stand up and stop prescribing antibiotics to patients with viral infections, which is a much bigger problem both socially and medically, I'm going to have a hard time listening to them complain about Celebrex. But that's another rant.

The more important question is how well the gatekeeper function of doctors is working. Certainly, it's extremely important to keep patients from sticking any old thing in their mouth. At the same time, in cases like my mother's, it means that patients don't get drugs that can help them because their doctor doesn't keep up on the advances, because their HMO has told their doctor not to tell them about it (it's no surprise that HMO's are the key funders of most of the anti-pharma lobbying groups), or because their doctor is too distracted, busy, etc. to think of it. Doctors resent the advertising because it challenges their gatekeeper power, but clearly in at least some cases, that power is keeping patients from treatment that would help them. We need to balance that against the danger that patients are demanding drugs that don't do them any good. Is it really so hard to explain the small differences between Prilosec and Nexium to patients that we need to enact legislation to ensure that patients never hear about the newer drugs? My pulmonologist doesn't seem to have a hard time distinguishing between the drugs I buy generic and the drugs I buy brand-name, and I pretty much follow his advice.

>>> I guess we've found out where someone would get the idea that mass-market demand for diamonds is a creation of advertising: by accepting at face value an ad agency's glowing report to its client about the effectiveness of its own campaign! <<<

When an advertising agency forces governments around the world into a joining supply-reducing cartel, to push up the price of commodity to the point where they can afford to pay the fee the agency charges for creating the demand for it, *then* I'll be worried about the power of Madison Avenue.

"...my mother did, in fact, consult a doctor, who told her to take aspirin and did not discuss the alternatives with her."

This is why advertising has a legitimate role to play. Few doctors can afford to spend an inordinate amount time with each patient. Experts are often too busy to give the majority of us thorough advice. This is true regardless of the field of endeavor. Andy Grove, the former CEO of Intel, found this out himself a few years ago. He had to do much of the research to find a cure for his cancer. Advertising can only introduce us to the product. It’s up to us to learn more about its possible benefits.

Jim:

>>When an advertising agency forces governments around the world into a joining supply-reducing cartel, to push up the price of commodity to the point where they can afford to pay the fee the agency charges for creating the demand for it, *then* I'll be worried about the power of Madison Avenue.<<

I'll try and dig out a book I remember reading a couple of years ago about the early development of the De Beers corporation ... suffice to say that you probably ought to be worried.

Also, the Vickers corporation in the 19th century would probably worry you ...