April 06, 2006

Tobacco Cartels

In Reason the other day, Jacob Sullum reminded us that large tobacco companies have used court settlements to muscle out smaller competitors. Here's what a Washington Times report had to say about this a year ago:
Critics say the 1998 Master Settlement Agreement has not turned out as expected as big players accused of wrongdoing wound up with market protections while small businesses were forced to pay up….

Under the deal, the big cigarette companies agreed to restrict their marketing, fund stop-smoking efforts and make annual payments to the states for 25 years.

But attorneys on both sides knew the large companies would raise cigarette prices to make their payments, so they built in protections to prevent companies outside the agreement from taking too much market share.
Sullum thinks this is all to the bad—the small tobacco companies that didn't engage in massive fraud and mislead their consumers are being penalized, while the four major tobacco companies that did all the wrongdoing now get to set up a state-enforced cartel as a reward. That sounds pretty bad, but let's see.

According to the Times the states don't much care about cartels and the like. Their ultimate goal is to reduce cigarette consumption, and blocking out smaller competitors and forcing the big companies to raise their prices could do just that. It seems to have worked. One other consideration, though, is that helping four large tobacco companies acquire even greater wealth and influence will make further tobacco regulation even harder, since these companies will have greater resources for lobbying and court battles. (Indeed, after lots of litigation, the major cigarette companies may soon get their annual payments under the MSA reduced by $1.2 billion.)

Here's something else. The MSA also required the four major tobacco companies to stop advertising to kids—no more cartoon characters, for instance. And after youth smoking rates saw a massive drop-off in 2002, after increasing steadily throughout the 1990s, many people think this was significant. But perhaps not. The New England Journal of Medicine found a few years ago that young people probably had the same exposure to cigarette advertising in magazines as they did prior to the MSA. Looking around, meanwhile, it seems the American Spectator was scoffing about advertising bans back in 1999:
But, frivolous libertarian complaints notwithstanding, wouldn't a federal settlement be a boon to the health of the country by funding countless health initiatives and stop-smoking programs? Not likely. First, in six European countries where tobacco ads have been completely banned, overall tobacco sales have increased.
Why on earth would that be? A-searching we go. David Cutler and Edward Glaeser recently asked the question, "Why Do Europeans Smoke More than Americans?" One-half of the difference, they found, can be accounted for by differences in beliefs about the health effects of smoking. "Europeans are generally less likely to think that cigarette smoking is harmful." What that has to do with tobacco cartels, I can't say, but it's all very curious.
-- Brad Plumer 3:16 PM || ||