Pharmaceuticals as a market for “lemons”: Theory and practice

https://doi.org/10.1016/j.socscimed.2020.113368Get rights and content

Highlights

  • Markets for “lemons” are a theoretically rich but unexplored domain for social scientists.

  • Two-tier markets for “lemons” reframes the sociology of the professions and their markets.

  • Pharmaceutical manufacturers use a baker's dozen of techniques to hide adverse risks.

  • Pharmaceuticals are the largest market for “lemons” in the world.

  • Regulators do not adequately control the sale of “lemons”.

Abstract

Drawing on economic theory and institutional analysis, this paper reframes Akerlof's theory of how a market for lemons operates and argues that each of the many markets for lemons must be studied empirically to document how different stakeholders cope with the problems of information asymmetry, secrecy, and power. Such markets are a new field for sociological analysis. To illustrate, the paper characterizes pharmaceuticals as a multi-tier market of information asymmetry in which actors in each tier have substantial control over how much they disclose about hidden risks of harm. Such a market rewards the production and sale of “lemons.” Current incentives and institutional practices reward developing a large number of barely therapeutically innovative drugs and ignoring their often hidden or understated harmful side effects. They reward designing and executing substandard, biased trials that mislead the FDA and regulators abroad to approve new drugs without clear evidence of their degree of harm. Approved drugs are likely to be “lemons” but promoted as “safe and effective.” The result is substantial hospitalizations and deaths from adverse drug reactions. A “risk proliferation syndrome” of institutional practices maximizes sales, profits, and exposure to toxic side effects. An “inverse benefit law” of marketing operates as companies try to maximize sales. The probability of benefits decreases but the chances of lemons adverse events do not. The details presented here deepen understanding of how markets for lemons thrive on information asymmetry, secrecy, and power. Lessons can be applied to other markets.

Introduction

Markets for “lemons,” in which customers fall victim to a product or service with flaws, and sellers profit from not disclosing hidden risks or dangers, are a theoretically rich but unexplored domain for social scientists studying information asymmetry, where sellers know about flaws but buyers do not and can be exploited. Social scientists to date have overlooked the potential of George Akerlof's (Akerlof, 1970) market for “lemons” for sociological interpretation, theoretical development, and empirical research. Asymmetries of information and power may tempt sellers to deceive or manipulate, fostering distrust and distortions. This essay will begin with offering an original, theoretical analysis of Akerlof's original article. It will dispel certain widely held assumptions and myths about markets for lemons and identify a large, unexplored domain for using analytic tools from sociology to understand how stakeholders respond to and address the inherent problems of such markets. The paper will then turn to pharmaceuticals as a complex market that is rife with hidden flaws or “lemons” and examine the strategies used by the major, research-based pharmaceutical firms to construct the evidence about benefits and harms of their leading drug-candidates and to get them approved and used. A final section will describe how this evidence is used to persuade physicians to prescribe new, patent-protected drugs that usually have few or no clinical advantages over existing products but pose substantial risks of harms that patients barely know about. One is left with a greater appreciation of ways a complex lemons market operates that can be applied to other lemons markets.

Section snippets

Reframing Akerlof's market for lemons

Akerlof's theory is in fact a set of related theories which are not tightly connected or explicated. Of greatest relevance is the most common understanding of a market for “lemons,” where the sellers know of hidden flaws, risks, or dangers but make more money by not disclosing them to buyers. Buyer beware. “The presence of people in the market who are willing to offer inferior goods,” Akerlof asserted, “tends to drive the market out of existence – as in the case of our automobile ‘lemons’” (pg

Pharmaceuticals as a market for lemons

From at least the early 19th century, drugs have been a market for lemons, but not one of a spiraling decline in quality ending in collapse. Rather, by fits and starts, laws and institutions have been developed to guard against lemons, promote effective medicines, and protect patients. Most were prompted to action by drug disasters, where scores or hundreds of innocent people were seriously harmed. The US Food and Drug Administration (FDA) haltingly gained more rules and powers to protect

Conclusions

This analysis of pharmaceuticals as a market for lemons has detailed ways in which companies minimize knowledge for physicians, regulators, patients and even themselves about the hidden dangers in new drugs. The resulting body of commercialized medical science is then used to shape both diagnosis and prescribing decisions in a market controlled by clinicians who have monopoly control over deciding what to prescribe and what they tell patients. Clinical guidelines are based on them, developed by

Credit author statement

Donald W Light, conceptualization, research, formal analysis, writing initial draft and revisions. Joel R. Lexchin, review, research, formal analysis, writing revisions.

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