Ciliberto, Federico and Kuminoff, Nicolai (2010): Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry. Published in: The B.E. Journal of Economic Analysis & Policy [Frontiers] , Vol. 10, No. 1 (17. July 2010)
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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.
|Item Type:||MPRA Paper|
|Original Title:||Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry|
|Keywords:||Cigarettes, Master Settlement Agreement, Demand, Collusion, Rational Addiction.|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L13 - Oligopoly and Other Imperfect Markets
L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization; Horizontal Anticompetitive Practices
H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H32 - Firm
|Depositing User:||Federico Ciliberto|
|Date Deposited:||11. Sep 2010 10:08|
|Last Modified:||12. Feb 2013 11:37|
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