Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry
Federico Ciliberto () and
MPRA Paper from University Library of Munich, Germany
This paper investigates the large and unexpected increase in cigarette prices that followed the 1997 Master Settlement Agreement (MSA). We integrate key features of rational addiction theory into a discrete-choice model of the demand for a differentiated product. We find that following the MSA firms set prices on a more elastic region of their demand curves. Using these estimates, we predict prices that would be charged under a variety of industry structures and pricing rules. Under the assumptions of firms’ perfect foresight and constant marginal costs, we fail to reject the hypothesis that firms collude on a dynamic pricing strategy.
Keywords: Cigarettes; Master Settlement Agreement; Demand; Collusion; Rational Addiction. (search for similar items in EconPapers)
JEL-codes: L13 L41 H32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-com, nep-dcm, nep-hea and nep-mic
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Journal Article: Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:24883
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