Section IV: Market Structure

by Tonye Moore

International and Concentrated Market

The cigarette market is an oligopoly. It consists of a small number of markets that compete. Each firm has a large share of the market and the firms are interdependent. An oligopoly market produces identical product and compete only on price. The United States cigarette market is an oligopoly that is dominated by these top major brands.

The market structure for cigarettes is international. Competition among manufacturers has decreased substantially since 1980. This has caused the cigarette market to become more concentrated.

U.S. Cigarette Industry 2002 Retail Share of Market by Manufacturer

Philip Morris	49.4%
R.J. Reynolds Tobacco	22.9%
BAT/Brown & Williamson	20.0%
Lorillard	8.2%
Liggett & Myers	2.3%
Other	7.2%

Source: IRI/Capstone

Philip Morris International is a major company related to Philip Morris USA that dominates the international cigarette market. It has a base in Lausanna, Switzerland it is one of the largest tobacco companies in the world. It operates and owns more than 50 factories around the world and sells their products in over 160 markets.

Regulations

The cigarette market is government regulated. The government regulates the cigarette market through the Food and Drug Administration (FDA) and the Federal Trade Commission system (FTC). These are some of the ways that the government regulates cigarettes.

New York State will have the first laws making it compulsory for cigarettes to meet new fire safety standards.
The Food and Drug Administration mandates that strong health warning should be placed on the packages.
The FDA set a minimum age of 18 to purchase tobacco products.
The FDA bans the sale of tobacco products through vending machines.
The FDA bans self-service displays of tobacco products except in adult only facilities; retail tobacco sellers must be licensed, etc.
The FDA bans smoking in public places.
The FDA placed restrictions on the retail merchandising legislation.
The FTC- Federal Trade Commission system help to measure the tar and nicotine content of cigarettes.
Public Health Cigarette Smoking Act of 1969
Consumer Product Safety Act of 1972

Most regulations are aimed to benefit public health, especially youth.

Conclusion

Oligopolies result in large profits for the concentrated firms. This is shown through mega billion dollar firms like Phillip Morris International and R.J. Reynolds Tobacco. Recent regulations in the U.S. have resulted in a less profitable market. This in effect makes international market more rewarding for the U.S. Cigarette companies.

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