Tuesday, 15 July 2008

Fixing the market

Given that the government are so keen to reduce the prevalence of smoking, you wouldn’t expect them to be too bothered about keeping the price of fags down. So it is rather surprising that this price-fixing case was pursued with so much vigour. Wouldn’t they argue that there is no real benefit to consumers from lower prices as it would simply encourage them to smoke more?

In reality, of course, the ban on tobacco advertising in itself represents a form of price fixing, as it makes it very difficult for consumers to compare prices between outlets, and prevents manufacturers promoting brands on the basis of price. The effect of this ban is to protect the market position of established manufacturers, save them money on advertising and erect an insurmountable barrier to entry to the industry. It is the consumers who suffer, not the manufacturers.

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