• 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. The structure of the airline industry.

    Finally, cargo airlines do as the name suggests. Majors, nationals, and regionals can be cargo carriers and many of them are. To be cargo only, the FAA/DOT have different requirements for the airplanes that must be met before receiving such a certificate. Geographic Area The classification of airlines is one definition of markets in the industry, however it is more complicated than this.

  2. Case Study: The Home Depot

    in the environment of the company and to solve operational problems related to the business process, or concept. Important is that the strategic managers get most of their ideas from the lower-level employee's this is invited and encouraged in the open business culture of Home Depot.

  1. Chinese car market overview. Citroen case study

    Shocking the industry, two privately owned Chinese companies have launched products that in less than 24 months have stolen 10 percent of the market. The Chery, a Chinese model built from an older SEAT production line shipped over from Spain and the Geely, a Daihatsu Charade knock-off, will combine for sales of 90,000 units in 2002.

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    Being part of the EU for Sony brings the prospect of low inflation and decent economic growth of the small EU countries that are inoperative e.g. Greece that suffer from high inflation. This is because there is tight control from the European Central Bank and they set an interest rate

  1. "ASI" LTD case study.

    If this activity is successful in the future, the need for enlargement of the team will be inevitable. It is a question of strategic human resource planning. Part 2 Microeconomic Analysis 1. Media and Advertising market in Bulgaria After 10th of November 1989 when the communist regime fell the media market in Bulgaria passed through dramatic development.

  2. Liberalization: where it has lead us and where it is headed

    That's all that's necessary. Nothing more. Just get out of the way. If it did, India would bloom economically in ways that we cannot even imagine today. Many people believe that government should do more than get out of the way.

  1. analyze an organization (ba)

    2.1.2 Buyer Power Buyers can have a similar effect on profitability as suppliers, just in the other direction. Buyers are very important for any industry, as they provide the source of revenue for the company. As Porter pointed out, buyers compete within the industry by forcing down prices, bargaining for

  2. The airline industry

    selected as the major organizational player as it is the largest international airline covering 535 destinations in 160 countries (Mintel, 2001) and carries more passengers from one country to another than any of its competitors (BA Fact book, 2002). Furthermore, BA is one of the world's longest established airlines and has always been regarded as an industry-leader.

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