The British Tobacco Industry

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The British Tobacco Industry 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. On the

first of these levels, one needs to establish whether there are

incentives to form a collusive agreement at the outset. There are

specific factors affecting the probability of collusion in this

particular case.

The first factor is, the number of leading firms and the percentage of

...

... middle of paper ...

...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.

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