Why can't we just fund R&D from pharmaceutical advertising budgets?

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Even if companies could, they won't, for reasons I just explained. But mostly because pharmaceutical advertising budgets aren't really very big. People who think that there is a gigantic pool of capital that could be sucked out of the pharmaceutical advertising budget are being misled by accounting terminology. People who rail against the pharmaceutical industry are fond of noting that about 20% of industry revenues go to marketing, with the implication that this is all wasted on advertising baldness cures during Golden Girls reruns. But just the top ten firms in the pharmaceutical industry took in about $350 billion in revenue in 2007, 20% of which is $70 billion. The entire US expenditure on advertising by all companies in all media forms totaled something like $150 billion in 2007. I know it seems like every other commercial you see is for Botox, but most advertising is not done by pharmaceutical firms.

In fact, advertising is only a small fraction of that marketing expense. Over half of it expense consists of free samples, the offering of which seems to me like an unalloyed public good.

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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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