• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Tobacco industry

Extracts from this document...

Introduction

Tobacco industry is a widely castigated industry, which has periodically been subject to royal disapprovals, the whims of fashionable use, medicinal studies, smuggling, trade disputes, and bans. Nevertheless, British cigarette market is known to be the most profitable market in the world. There are two main companies that dominate UK cigarette industry, which control almost 90% of the market. So, the purpose of my essay is to analyse the industry characteristics, which from my point of view have helped the organization and the effectiveness of the cartel between the tobacco leaders. I will be looking at specific factors affecting the probability of co-ordinated interaction between Imperial Tobacco, Gallaher and BAT as well as at "cigarettes" as a product, leading us to a conclusion that will summarize that there is a form of tacit collusion between these three firms. Collusion is defined as something very close, if not identical with, co-ordinated interaction. According to European Commission study the factors inhibiting or encouraging collusion will need to be examined on four levels in order to asses the likelihood of collusion. ...read more.

Middle

In our case the concentration ratio of the tobacco industry is equals to... this confirms the prediction that is provided by economic theory is that higher levels of concentration are likely to result in higher prices and losses in allocative efficiency. Secondly, it is known it there is an evidence of collusion in the same market in the past it is likely that the market conditions are conductive to co-ordinated interaction. As we can see from the case study, two years ago separate allegations surfaced that BAT, the third large firm in UK cigarette market, in the early 1990s colluded with rival manufacturers including Philip Morris and RJ Reynolds to fix prices in overseas territories. Thus, this is a factor that from my opinion has helped the organization of the cartel. Fears of collusive activity are, by and large, confined to industries in which the products are relatively homogeneous, with little differentiation or customization is yet another factor that can be applied for cigarette market. ...read more.

Conclusion

From the discussed factors, we can see that there is some degree of interdependence between the leading firms, which in most cases results in collusion. Why do they do it? Well, cigarettes are homogeneous products, with a relatively inelastic demand, almost 90% of the market is controlled by just 2 firms, there are substantially high entry barriers, and there is an evidence of collusion in the same market in the past. However investigations are still being carried out, and I have tried to apply my knowledge and research to show that there is and always have been tobacco cartels not only in UK market but other world-wide cigarette industries. There are many ways to reduce the incidence and severity of co-ordinated interaction, but in this case none of them would be relevant, because smoking kills, and bringing competition, thus more tobacco firms to an industry, will lead to expansion of such products. Whereas, the government should be concentrated in developing different product to encourage people to give up smoking, but this largely lies outside the scope of the current paper. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Sports manufacturers

    Consumers may be scanning the market for new and different footwear and apparel products. Demographics Opportunity Nike's once loyal market is currently aging. This means that our customers are not as athletic as they may have been in the past.

  2. "ASI" LTD case study.

    "The readers of publications for women, medicine or even parapsychology are increasing constantly." /Manager magazine, 1998, 21, :The newspapers lose readership, Rumjana Bachvarova. The kind of specialisation is by industries as well as by target groups - women, teenagers, auto maniacs, pensioners, etc.

  1. analyze an organization (ba)

    the resistance offered by existing businesses, the capital costs of entry, regulatory and legal constraints, brand loyalty and customer switching costs.(Campbell, 2002) Due to the decrease of the profit of airline industry is not safe for new firms to enter the market.

  2. Chinese car market overview. Citroen case study

    * to make Europe's funding go further. * to raise the EU's profile in China. The new president for China: Hu Jintao was selected Saturday to replace Jiang Zemin as the president of a fast-changing China, the last major step in a sweeping transition to a younger generation of leaders that has been years in the making.

  1. "To fix or not to fix?"

    An analogous mechanism would operate to curb the impact of an initial recession in US. Both cases illustrate the role of exchange rate flexibility in guarding the domestic economy to some degree against international economic instability. Going by the same token, floating exchange rates also help to diminish our own domestic economic instability.

  2. The airline industry

    The current Iraqi conflict has already hit Middle East routes with passenger numbers down significantly (Wheatcroft, 2003) and any attack on Iraq will have severe consequences for an industry already in financial distress. The effect that war can have on an airline's performance was summed up by Lord Marshall (Chairman of BA)

  1. Case Study: The Home Depot

    With their computerised systems, like barcode scanning and minicomputers, the checkout lines are not that long. Further on, they've got their own truck rental and tool rental service. Price is their next core competency. They know prices of the competition through professional shoppers.

  2. The structure of the airline industry.

    Southwest, like AirTran, plans to purchase more planes for their fleet. In addition they are planning to hire as many as 4,000 more workers. Southwest has been very successful with marketing tickets online. Approximately 50% of their sales happen via the internet.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work