Market Failure: Sugar-free Tums

by PhilGoetz 3y30th Jun 20162 min read30 comments

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In theory, the free market and democracy both work because suppliers are incentivized to provide products and services that people want.  Economists consider it a perverse situation when the market does not provide what people want, and look for explanations such as government regulation.

The funny thing is that sometimes the market doesn't work, and I look and look for the reason why, and all I can come up with is, People are stupid.

I've written before about the market's apparent failure to provide cup holders in cars.  I saw another example this week in the latest Wired magazine, a piece on page 42 about a start-up called Thinx to make re-usable women's underwear that absorbs menstrual fluid--all of it, so women don't have to slip out of the middle of meetings to change tampons.  The piece's angle was that venture capitalists rejected the idea because they were mostly men and so didn't "get it".

I'd guess they "got it".  It isn't a complicated idea.  The thing is, there are already 3 giant companies battling for that market.  The first thing a VC would say when you tell him you're going to make something better than a tampon is, "Why haven't Playtex, Kotex, or Tampax already done that?"

So, Thinx did a kickstarter and has now sold hundreds of thousands of thousands of absorbent underwear for about $30 each.

The failure in this case is not that VCs are sexist, but that Playtex, etc., never developed this product, although there evidently is a demand for it, and there is no evident reason it couldn't have been produced 20 years ago.  The belief that the market doesn't fail then almost led to a further failure, the failure to develop the product at the present time, because the belief that the market doesn't fail implied the product could not be profitable.

I just now came across an even clearer case of market failure: Sugar-free Tums.

Sugar-free Tums are Tums calcium antacid tablets made with aspartame instead of sugar.  Lots of people want sugar-free antacids.  Diabetics can't have the tablets with sugar, people who are health-conscious don't want them, and most acid reflux happens at night, after you've already brushed your teeth, and chomping every night on sugar tablets which get crushed into chalk and impacted between all your teeth until morning is a sure way to get cavities.

Sugar-free antacids haven't been available for about a year and a half.  I was always puzzled that only Tums ever produced sugar-free antacids, and Tums stopped making them sometime, I think, in late 2014.

Maybe there's no demand for them?  No profit to be had?

Check this out: Bottles of 80 sugar-free Tums were originally $4 a bottle.  By April 2015, Amazon vendors were selling their old stock for $17 a bottle.  In January 2016, they were $60 a bottle.  Now a generic manufacturer has started selling sugar-free calcium tablets for just $30 for a bottle of 80, and Tums sugar-free has dropped to between $41 and $51 dollars a bottle (10 Amazon sellers).

ADDED:  It is not a "market success" that sugar-free Tums get sold at some price.  "Market failure" in this case means competition has not driven the price down to a socially-optimal level.  That's what the term means.  It doesn't mean nobody is selling the stuff; it means the allocation of goods and services is inefficient.  If you claim the market works, that doesn't mean people sell stuff.  It means the actions of selfish agents in a free market result in a socially optimal outcome.  That has almost not happened with sugar-free Tums.  The  explanation of why a high price is unlikely to be socially optimal is beyond the scope of this post.

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