Thursday, January 01, 2009

What Can a Tampon Teach us About Markets?

I was watching television with some friends recently, and during a commercial for some new model of panty liner a friend asked if anyone else was "disturbed by the amount of research being put into creating new feminine hygiene products. After all, how many different types of tampons and panty liners does the world really need?"

Like most things other people say, it got me thinking. Why IS there so much research going into feminine hygiene products, or indeed any other personal care product? Walk down the personal care aisle of any grocery store, and you'll see an amazing variety of products in every category. Whether it's toothbrushes, hair gel, antiperspirant, shampoo, facial cleanser, or hand lotion, consumers have a plethora of choices.

I think the primary reason for this vast array of variety is regulation, or rather, the lack thereof. These industries are incredibly vibrant because they're largely unregulated. Unlike heavily regulated industries there are very few barriers to entry for a small company that wants to make toothbrushes, toothpaste, or mouthwash. Putting a new brand of hair gel or conditioner on the shelf doesn't require expending resources meeting cumbersome safety rules. The products are safe because consumers wouldn't buy them if they weren't. There's incredible variety because it's simpler for smaller companies to compete. The playing field is level because no one company is hampered any more or less than another by the heavy hand of government. Greater competition means more innovation and research as companies search for ways to stay ahead of their competitors. This is why there are so many different brands and styles of panty liners on grocery store shelves.

Of course, this condition is not at all unique to personal care products. In any un- (or at least less-) regulated industry there will always be more research, greater innovation, higher quality, and lower prices. Witness the computer hardware industry, for instance, or the television industry. These are almost entirely unregulated, and so they are incredibly vibrant. Computer hardware gets faster, better, and cheaper every day, and televisions get larger, cheaper, and have better picture quality all the time. There is no reason the same would not be true of any industry that currently suffers from government oversight. Whether it's health care, education, banking, or otherwise, freeing resources for innovation by reducing government regulation will always result in better, safer, less expensive products and services.


Cheree said...

At risk of opening a can of worms, I simply cannot allow your statement "The products are safe because consumers wouldn't buy them if they weren't" to go unchallenged. To quote Jeremy Clarkson, "It's rubbish." Fen-Phen wasn't safe and consumers by the thousands bought it. Most consumer products that are taken off the market because they're unsafe are proved to be unsafe AFTER thousands, hundreds of thousands, or millions of sales. The use by, and subsequent harm of, consumers amounts to safety testing that the manufacturer did not do before marketing the product.

Your assertion that personal care products are un- or lightly regulated is also erroneous. I call your attention to a government agency called the FDA. They dictate what ingredients can be used in personal care products. You can't just mix up a bunch of stuff, put it in a tube and slap it on the shelves for sale as Ron's Toothpaste. All the ingredients must be tested for safety first and approved by the FDA. That means that a manufacturer must either a) use ingredients that have already been tested and are approved - not much innovation there; or b) use new ingredients that they must test and get approved by the FDA before their product can be sold. So in fact, your toothpaste is safe because the FDA (regulation) dictated what could be used in it. These industries are more heavily regulated because the potential for harm is higher. Broadcast content aside, a TV lacks an inherent ability to harm a user. But harmful ingredients in a body lotion are absorbed into the body and can harm a person's health.

In the average chain store, the incredible variety you see in the shampoo aisle is in fact manufactured by perhaps a half dozen global conglomerates. Unilever, for examle, has nine different brands in it's personal care line. Proctor & Gamble has five different shampoo brands. Thus the incredibly variety you see is the work of just a handful of large companies. The personal care industry is a billions of dollars a year industry and companies are eager for as big a piece of the pie as they can get, particularly since even in crap economic times people still wash and brush their teeth. The variety also exists because society in general has bought into the ever-present arbitrary constructs surrounding beauty. Constructs that the companies themselves have no small part in generating. Exhibit A: The Herbal Essences commercials that show a woman being attended by half-naked, buff young men while she washes her hair and subsequently orgasms, usually in a humorously inappropriate place. These companies are selling promises in a bottle: If you use our shampoo then men will find you hot and you'll orgasm! The manufacturers are preying (and praying) on the average person's insecurity that they aren't attractive enough to get the hot guy or girl, and that once said hottie is snagged, they'll live happily ever after. They're selling products with fairy tales attached. And people buy them for the same reason that they go to church-hope. The new shampoo that promises softer, shinier hair gives them something to hope for and makes them feel better about themselves. (Sorry, got on a soapbox-pun intended.)

While their methods are often suspect, I personally support the mission of the FDA. Since I lack the knowledge and resources to personally test the safety of all my food, shampoos, and toothpastes, I'll settle for the FDA forcing the manufacturers to use ingredients that have been tested for safety. It's not a perfect system and there is much room for improvement, but I'll take it over the alternative.

Ron Jennings said...

Wow...thanks for commenting, Cheree! I had no idea anyone ever checked the Wombat Blog anymore. ;-)

Allow me to amend my statement about consumers buying unsafe products. Perhaps it would have been more appropriate to say, "the products are safe because companies that consistently produced unsafe products wouldn't remain in business for long." In the case of Fen-Phen the actions that lead eventually to its withdrawal from the market were primarily private. When some of the drug's users were diagnosed with valvular heart disease and pulmonary hypertension the lawsuits against the manufacturer began. To date the estimated liability to the manufacturer has been in the tens of billions of dollars. In response to doctors' findings in patients who had taken the drug the FDA requested that the manufacturer remove it from the market voluntarily, which the manufacturer did. At the time of its withdrawal, only 90 cases of valvular heart disease linked to use of Fen-Phen had been reported. There have been plenty of lawsuits since then, but I haven't yet found a total of how many users have claimed to have been harmed by the drug.

I've never said, nor do I believe that the free market would prevent mistakes, or that every free market solution would be perfect. Humans are imperfect, after all, and no amount of testing can guarantee that a drug is "safe" for everyone who may use it. However, any drug manufacturer would rather sell drugs that work and are safe than pay damages from lawsuits. There is, therefore, a strong incentive to ensure that drugs are as safe as possible before putting them on the shelves.

In regard to the regulation of cosmetics, the FDA does not require specific testing to ensure their safety. Their oversight of cosmetics is limited primarily to regulations concerning labelling.

From the FDA website:

Does FDA approve cosmetics before they go on the market?

FDA's legal authority over cosmetics is different from other products regulated by the agency, such as drugs, biologics, and medical devices. Cosmetic products and ingredients are not subject to FDA premarket approval authority, with the exception of color additives. However, FDA may pursue enforcement action against violative products, or against firms or individuals who violate the law.

Who is responsible for substantiating the safety of cosmetics?

Cosmetic firms are responsible for substantiating the safety of their products and ingredients before marketing. Failure to adequately substantiate the safety of a cosmetic product or its ingredients prior to marketing causes the product to be misbranded unless the following warning statement appears conspicuously on the principal display panel of the product's label:

"Warning--The safety of this product has not been determined." (21 CFR 740.10)

In addition, regulations prohibit or restrict the use of several ingredients in cosmetic products and require warning statements on the labels of certain types of cosmetics.

So, the labels have to be accurate, and there are some ingredients they aren't allowed to use, but that's pretty much it when it comes to cosmetics. The website mentions that the manufacturer is responsible for ensuring safety, which is true for pharmaceuticals as well. The FDA doesn't do any of its own testing. The FDA dictates the testing that must be done then reviews the results until it's satisfied. This is a lengthy, expensive process, and one of the things many people don't think about are the number of people who die or suffer needlessly while waiting for life-saving pharmaceuticals to work their way through the tangle of FDA bureaucracy. How many AIDS patients died or suffered, or went through the expense of traveling to other countries for treatment while waiting for new drugs to be approved? In the end, shouldn't it be up to the individual to decide what to put in his or her body? In my opinion, the higher the risk of harm, the less I trust the government to protect me. I could go on about reasons to abolish the FDA, but I'll save that for another post.

Back to cosmetics. :) When you go to Whole Foods, how many products made by Unilever, P&G, or any other large corporation do you see? I haven't been to Whole Foods in a while, but I'm betting it's close to none. How many varieties of natural products are there? A lot, though admittedly not as many as you'll see at Target. The point, though, is that light regulation is what makes that possible. If we look back at pharmaceuticals, you'll notice that the situation you describe is even worse...they're produced by a very few, very large companies because only such large conglomerates can afford to expend the enormous amount of resources required to get actual drugs approved. Meanwhile the products you see in the health section at Whole Foods must be classified as "health supplements" in order to get around the FDA regs.

Zoolu Marleau said...

The FDA is paid for with stolen money so that alone makes it a no-go. Then, on top of that, it denies each individual the right to decide for themselves about the things the FDA regulates. And then on top of that, they crowd out the ability for us to have a competitive free market providing us with what we really want. Other than that, it's not too bad I guess. Finally, I don't for one minute believe that the only way I can have safe toothpaste is by coercive government regulation and, Cheree, you can't draw that conclusion like that.