This article discusses new regulations on cigarette packaging in Australia aimed at reducing smoking. No longer are brand images allowed to appear on cigarette wrappers - rather, it is required that cigarettes have “drab wrappers” with warning labels and graphic images of the negative health effects of smoking. This has severely limited the ability of tobacco manufacturers to brand and market their products in Australia, and has prompted significant backlash against regulations by large tobacco companies and cigarette-producing countries alike. Several countries are filing WTO cases against Australia on the grounds that the country is using these regulations as a way to limit cigarette imports rather than simply to improve health.
The other countries’ fight against Australia’s cigarette packaging regulation struck me as interesting. In class we discussed advertising regulations as actually proving beneficial to cigarette companies, as they limit the entry of new firms into the industry. The WTO cases brought against Australia prove that cigarette companies see the reduction in their sales due to packaging restrictions as greater than the gain due to the entry restrictions it imposes, however. This case seems to run counter to Stigler’s theory, which says that regulation is acquired by an industry and is designed and operates for its benefit. It seems here that an alternative explanation of regulation - that it is for the public good - seems most applicable. Unless there are deeper issues at work here, Australia’s cigarette packaging regulations seem to be aimed at promoting health rather than protecting the cigarette industry.
2 comments:
I initially thought the exact same thing as you. For example, in 2009 in the US ad spending on cigarettes dropped 14% and sales dropped 10%. In the next year ad spending dropped 5.6% and sales dropped 3%. These facts seem to back up your point.
Interestingly, while the overall sales of cigarettes is dropping, Altria, the richest tobacco company in the US, more than doubled its profits last quarter. It is also the top spender on lobbying among tobacco group. It is possible that the top tobacco companies do indeed want this regulation in order to drive out competition, even though it harms the industry as a whole.
I agree with Chris. Although some companies are fighting against the new tobacco restrictions, these companies fear not being able to market their product to compete with large companies like Altria. In a store, the main thing that differentiates products is it's labeling. The only chance small companies have in competing against large companies is through creative or eye-catching marketing and labeling. These restrictions that limit how companies can label their product are making the tobacco industry less competitive becasue they can not differentiate their products. As a result, the main deciding factor will be price differences, and the larger company (who can take advantage of large economices of scale) will be able to provide a cheaper product and as a result, win the market for cigarettes. These laws will make the big companies like Altria even more successful. In addition, I think it is interesting that although less people smoke cigarettes than in previous years, Altrias' profits have doubled. This is probably a result of Altria gaining a larger portion of the market.
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