The tobacco industry

Résumé du document

The origin of tobacco is quite old, and it became an industry when European discovered it. But the future of this particular industry is uncertain. Tobacco is not really an innocent product, since it has been proved to be addicting and to favour diseases such as cancer. Consequently, tobacco firms have been subject to many critics concerning their harmful products and tendency to hide information concerning danger of tobacco for the last 30 years. Tobacco is still a profitable industry, thanks its lack of atomicity, but legal risk is constantly growing. Tobacco use was common in most parts of native America. Some evidences reveal its consumption is at least dating from 900 A.D. It was widely distributed throughout the continent. Tobacco was smoked, sometimes with pipes. The first Europeans to meet Native American, sailors of Christopher Columbus, were astonished by this practice, and a little disgusted. But no sooner have they tried it than they like the feeling, and they introduce tobacco in Spanish ports.

Extraits

[...] The history of the industry shows that there is a tendency to merge. Concentration is a trend of capitalism. As we saw before, the level of concentration is very high globally. The obvious goal of mergers is to gain efficiency because of economy of scales: the bigger the production, the lower the average mean cost. But in a more strategic view, it can be seen as an attempt to gain higher market share. Bigger market shares implies also a bigger market power, that means better conditions from supplier, and less competition in sales. [...]

[...] This cause BAT to become an entirely British firm. Surprisingly, Philip Morris was still a quite small company in the 30's, compared to the main actors. But America was a mature market, so some firms, especially Philip Morris explore the possibility of expansion into international markets to increase their growth. Because of first studies showing dangerousness of smoking, filtered cigarettes appears in the 1950's, followed by low-tar and low-nicotine cigarettes in the 1960s. In the late 1970's, many sectors felt the need of diversification and of creation of conglomerate. [...]

[...] Incidentally, it has been observed that wages are higher in this industry than in others, as a “premium” for working in a bad-considerated industry. Then come price of machinery, and finally the cot of raw material: mainly tobacco and paper. Price of tobacco did not rise substantially, thanks to the increase of cultivated superficies. Marketing and legal Research and Development costs are major cost in modern tobacco industry. We saw that tobacco products were homogenous, and that marketing was the main way to differentiate. Legal cost increased a lot in the 80's. [...]

[...] and Perloff Jeffrey M. (2000), Modern industrial organization, Addison-Wesley Collective (2003), Issues in the global tobacco economy, Food and Agriculture Organization of the United Nations Frankel Jeffrey and Orszag Peter (2002), American economic policy in the 1980s, University of Chicago Press (2002), American economic policy in the 1990s, MIT Press Nourisson Didier (2000), Histoire sociale du tabac, Christian Viscusi W. Kip and alii (2000), Economics of regulation and antitrust, MIT Press Article The Economist 7/6/01, The price is not quite right Tob Control 1998, 7:426-428 (Winter), Consolidation in the tobacco industry Websites http://fr.wikipedia.org/wiki/Tabac http://en.wikipedia.org/wiki/Tobacco http://biz.yahoo.com/ic/profile/tobaco_1203.html http://www.who.int/tobacco/statistics/tobacco_atlas/en/ http://r0.unctad.org/infocomm/francais/tabac/marche.htm http://factsheets.globalink.org/en/advertising.shtml http://www.fao.org/english/newsroom/news/2003/26919-en.html http://www.ash.org.uk/html/factsheets/html/fact21.html http://www.ash.org.uk/html/factsheets/html/basic01.html 10) http://www.philipmorrisinternational.com/pmintl/pages/eng/default.asp 11) http://www.altria.com/ 12) http://www.bat.com/ 13) http://www.jti.co.jp/JTI_E/ 14) http://www.doctissimo.fr/html/sante/hommes/sa_1378_etats_unis.htm 15) http://www.prevention.ch/ryzeltner.htm 16) http://www.lalibre.be/article.phtml?id=5&subid=86&art_id=260634 17) http://www.cnct.org/site/article.php3?id_article=63 18) http://tobacco.aadac.com/about_smoking/economic_costs/ 19) http://legalminds.lp.findlaw.com/list/antitrust/msg01803.html 20) http://www.cdc.gov/tobacco/sgr/sgr_2000/ 21) http://www.ftc.gov/reports/tobacco/tobacco9909.htm#1 22) http://www.tobacco.org/news/205377.html 23) http://www.tobaccoreporter.com/ 24) http://ipo.nasdaq.com/TextSection.asp?cikid=7505&fnid=16376&sec=cm 25) http://www.tobacco.org/Resources/mktshr.html Appendix Top U.S. [...]

[...] In the case American Tobacco Co. v. United States U.S (1946), the SC pointed out the uniformity of prices at both the wholesale and the retail level. In fact, a parallel pricing behavior: the SC stated that formal agreement is necessary to constitute an unlawful conspiracy”. Then, the government qualified their price in the 30's as predatory pricing against smaller firms selling “economy brand”. Last, when buying tobacco, mostly from American farmer, the industry as a whole acted as a monopsone, acting like a lone consumer offering more and last the same price. [...]