Working Paper: NBER ID: w15699
Authors: Werner Troesken
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.
Keywords: No keywords provided
JEL Codes: N0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| demand elasticity concerning product failures (L15) | demand for patent medicines (L65) |
| lack of effective alternatives and accumulation of consumers seeking cures (P46) | demand for patent medicines (L65) |
| genuine medical advancements (germ theory) (O35) | demand for patent medicines (L65) |
| age distribution of the population (J11) | demand for patent medicines (L65) |
| consumers' willingness to experiment with various products (D18) | demand for patent medicines (L65) |