The US Cigarette Industry: An Economic and Marketing Perspective.

ABSTRACT

OBJECTIVES: Tobacco company conduct has been a central concern in tobacco control. Nevertheless, the public health community has not taken full advantage of the large economics and marketing literature on market competition in the cigarette industry. METHODS: We conducted an unstructured narrative review of the economics and marketing literature using an antitrust framework that considers 1) market; definition, 2) market concentration; 3) entry barriers; and 4) firm conduct. RESULTS: Since the 1960s, U.S. cigarette market concentration has increased primarily due to mergers and growth in the Marlboro brand. Entry barriers have included brand proliferation, slotting allowance contracts with retailers and government regulation. While cigarette sales have declined, established firms have used coordinated price increases, predatory pricing and price discrimination to sustain their market power and profits. CONCLUSIONS: Although the major cigarette firms have exercised market power to increase prices and profits, the market could be radically changing, with consumers more likely to use several different types of tobacco products rather than just smoking a single cigarette brand. Better understanding of the interaction between market structure and government regulation can help develop effective policies in this changing tobacco product market.