> Nobody wants to spend money on marketing. If drug companies could recoup their investment faster by spending less on marketing, they would.
This doesn't pass my sniff test. The original article's point isn't that companies are marketing just so they can flush money down the toilet. Of course it's profitable. The article's point is that we as a society want them to spend more money on R&D; and our current strategy seems not to be working.
Companies would prefer to spend no money at all. If they could recoup their investment by spending no money on marketing, research, development, or production, they would. So a good company does the next best thing: they find the least costly, most efficient way to make money and prioritize that.
If companies are investing the majority of their resources into marketing, that at least suggests that they view marketing as the most efficient way to make money. Since we as a society would prefer that R&D be the most efficient way for them to make money, it may very well be reasonable to look for ways to decrease the cost of R&D and/or to increase the cost of marketing.
Shortening the exclusivity period of a patent might be an effective way to decrease the value of marketing, since marketing returns likely benefit from exclusivity.
Shortening exclusivity would increase the need for marketing, because companies would have to get the word out to consumers and doctors much more quickly.
Again, that might be true, but it rings multiple alarm bells when I actually think about it.
First, it assumes that the profit margins of a company remain constant. Again, companies want to make money. Period. So say that you're a pharmaceutical company and you're currently getting back 250% of your costs for a drug over the exclusivity period.
If we double that exclusivity period, you are not going to decrease the price you charge or the amount you invest into marketing so that your return on investment remains 250%. At least, not if you're a good business owner. You're going to double down on the exact same strategy and make 500% return. If I later halve your exclusivity period, you won't stay at 500%. You'll go back to 250%.
The fact that a company has less time to do marketing does actually suggest to me that marketing becomes a less bulletproof, desirable strategy for making money - which is exactly what the author wants. It might still be a bad idea; maybe pricing becomes the most efficient way to generate profit, or maybe the drug industry has such tight margins that there is no efficient way to generate profit and everyone closes up shop.
But it seems at least somewhat reasonable to say that if you expect the cost of marketing to remain constant, and the return per dollar to go down severely, you invest less into the now inefficient strategy.
The other reason that I have difficulty accepting this claim at face value is because I can think of markets where it just isn't true: for example, mobile apps. Nobody smart is investing huge amounts of money into marketing a mobile app. What they're doing is churning out five apps a week on the hope that one of them goes viral.
The lack of exclusivity in that market means that constant development is basically a requirement to keep your head above water.
Now, do we want our drug industry to look like the mobile app market? The mobile market is so opposed to long-term investment that the majority of games and apps developed there are rushed-to-market crap. So we probably don't want our drug research to operate the same way.
But I don't think it's immediately unreasonable that there might be a middle ground we could hit between 20+ years of exclusivity and 4 days of exclusivity.
If we take the somewhat liberal assumption that pharma's marketing budget is ecomically optimal at present - eg marginal costs equal marginal revenue, how is making marketing more expensive helping anyone? All it will do is decrease revenue/drug which will have a knock-on effect on marginal revenue of R&D: reducing gross R&D expenditure and thus approved drugs.
In the end, you can have more new drugs (new antibiotics, orpan drugs, etc.), or cheaper drugs(Less qualified, fewer, off label usage, not qualified for efficacy, etc.) There are different ways to make either happen but short of attacking an inefficiency in the system there's no free lunch. Equipment costs money and scientists need to eat.
> If we take the somewhat liberal assumption that pharma's marketing budget is ecomically optimal at present - eg marginal costs equal marginal revenue
Do we take that assumption?
Sure, if we take the assumption that we're operating at perfect efficiency already, then I suppose there's no need to mess up an already good system. And maybe we are; I've even seen a few articles suggesting that we're suboptimal, that pharma is bleeding money at the moment. In which case, maybe the takeaway is the opposite, that we should extend exclusivity to 25 years or something.
But that's a very different claim to make. I suspect that the author of the linked article would claim that pharma is not at all optimal, and I suspect that any entrenched industry in a large market being optimal is the exception rather than the rule.
I think it's generally a mistake to assume that things cost a lot because they have to. Often in a free market it is because of large (solvable) inefficiencies or bad business practices, which is exactly what enables newer industries and businesses to out-compete and displace older ones.
This doesn't pass my sniff test. The original article's point isn't that companies are marketing just so they can flush money down the toilet. Of course it's profitable. The article's point is that we as a society want them to spend more money on R&D; and our current strategy seems not to be working.
Companies would prefer to spend no money at all. If they could recoup their investment by spending no money on marketing, research, development, or production, they would. So a good company does the next best thing: they find the least costly, most efficient way to make money and prioritize that.
If companies are investing the majority of their resources into marketing, that at least suggests that they view marketing as the most efficient way to make money. Since we as a society would prefer that R&D be the most efficient way for them to make money, it may very well be reasonable to look for ways to decrease the cost of R&D and/or to increase the cost of marketing.
Shortening the exclusivity period of a patent might be an effective way to decrease the value of marketing, since marketing returns likely benefit from exclusivity.