Vice Squad
Monday, January 12, 2004
US Tobacco Settlement Under Siege

The 1998 settlement between tobacco manufacturers and state attorneys general is under attack as being anti-competitive. Of course, the settlement is anti-competitive. It essentially imposes higher taxes on existing manufacturers. The higher prices that result potentially would have created an enhanced incentive for new producers (not subject to the settlement taxes) to enter the market and to gain market share. To prevent this foreseeable development, the settlement commits the states to impose taxes on non-settling firms that gain a significant market share.

One importer has sued in Federal court, and now its suit has an opportunity to move ahead. Overlawyered and the Volokh Conspiracy have more.

Incidentally, the hegemony of the Big Four tobacco manufacturers is already under serious post-settlement attack from competitors. Here's a paragraph from a January 5 report from a North Carolina-based news station: "In four years, the market share of the small cigarette companies has multiplied more than tenfold, from 0.5 percent of cigarettes sold in the United States in 1998 to 6.5 percent in 2002, according to the National Association of Attorneys General. The group said the numbers for 2003 will be more startling."

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