17 Nov 2003  Research & Ideas

The Business of Babies

The demand for babies by infertile couples and other would-be parents is huge—and little discussed. HBS professor Debora L. Spar looks at the market realities.

 

We prefer to think of babies as cuddly bundles of joy, but they are also products at the center of a multibillion-dollar market in adoptions and scientific conception, a market that few people acknowledge and that functions like no other.

Harvard Business School professor Debora L. Spar, speaking to the 2003 Alumni Healthcare Conference on November 7, outlined the characteristics of the baby market and the political, social, and regulatory roadblocks to businesses that wish to participate.

"Morality surrounds this market to such an extent that some observers suggest it can't become a commercial business," Spar said. "I think this is wrong. The demands of the parent will outweigh political and moral opposition." However, those who want to succeed in the market need to fight to shape property, privacy, and contract laws, she said.

It's also a business that many people wish not to see, she said.

"We have a business that doesn't feel like a business," said Spar. "Nobody wants to acknowledge the extent of commercialization." Yet Americans alone spent $2.7 billion on fertility treatments in 2002. Procedures such as egg and sperm donation, in vitro fertilization (IVF), surrogacy, and adoption demand payments of $10,000 and up.

The largest demand in this market consists of infertile couples. Last year, some two million U.S. couples underwent fertility treatments. Additional demand includes same-sex couples, those at risk of passing on genetic defects to their children, single parents, fertile adopters, and "gender selectors" who want a baby boy (or girl) at any cost.

"We're not talking about demand for potato chips," said Spar. "This is the kind of demand that becomes an obsession. Price is less of an issue than it is in other markets."

We're not talking about demand for potato chips. This is the kind of demand that becomes an obsession.
— Debora Spar

There are both low- and high-tech supplies of children, Spar continued. With ten million AIDS orphans in Africa and more than 500,000 U.S. children in foster care, the vast number of children available for adoption is the most obvious "low-tech" solution to satisfy demand. However, this availability is complicated by racial preferences (most people want children who look like them), information asymmetries (such as white couples who adopt Chinese babies), and international restrictions and legislation concerning adoption.

High-tech measures include IVF, artificial insemination, surrogacy, gamete interfallopian transfer (GIFT) in which the sperm is injected directly into the fallopian tube, preimplantation genetic testing (PGD), in which fertilized eggs are tested for defects before being implanted in the uterus, and, on the extreme end, cloning.

A market unlike any other

But while there is a clear market here, she said, "everyone involved will insist it isn't so." Eggs, for example, are said to be "donated," yet donors are paid according to the desirability of their physical and mental qualities—at least $2,500, but sometimes much more. Spar showed an ad that appeared in Ivy League campus newspapers that offered $50,000 to women who were at least 5' 10" with 1400 SAT scores. Sperm donations normally fetch $200 to $300. ("Sorry, gentlemen," Spar joked.)

Despite the classic components of supply, demand, advertising, and differentiation, this market does not function normally, said Spar:

  • Prices are excessive. "We have a product that 90 percent of the population gets for free. The other ten or fifteen percent have to pay anywhere from $25,000 to $60,000 and up. You don't see that kind of inequity often."
  • Inconsistent standards of payment. Only ten U.S. states have some sort of mandate regarding insurance coverage for fertility treatments. In some cases, desperate couples are relocating for the sole purpose of obtaining coverage.
  • Ambiguous legislation regarding ownership of children. "Court decisions have been all over the map," said Spar.
  • Absence of property rights. "Do you own a child—even your child? Do you own your body?" asked Spar. "The law says yes and no." Until there is more clarity, the market cannot thrive.

"The best technology in the world won't help you if it's illegal," Spar said. "If advances in biotechnology are to reach their full commercial and scientific promise, sustaining moral and legal systems will have to be crafted around them."

Another determinant of success in this market is the ability to sell—and deliver on—hope. "Providers are selling the promise of a child, the dream of a family, but at some point they have to come through," said Spar.

Privacy is a factor as well. "This is an intimately personal transaction, yet in many instances, people don't want to be involved with the ultimate suppliers. It's a market suited to intermediaries such as brokers, lawyers, and agents."

The emphasis in donor profiles on intelligence and physical attributes also raises the specter of eugenics, the science of creating a superior race through selective genetics. In order to succeed, providers will have to walk a fine line between making the customer happy and avoiding controversy.

"You can't be politically naïve and do well in this business," Spar said.

About the author

Julia Hanna is Associate Editor of the HBS Bulletin.