This research paper discusses the structure of the tobacco industry, the legal and regulatory challenges it faces and the strategies pursued by the industry in meeting threats to its sales and profits from the sales of cigarettes in the United States. Until recently, the industry has used its oligopolistic market position, its financial power and its political influence to dilute efforts to regulate the manufacturing and sale of cigarettes. However, recent developments pose the most significant threats the industry has ever faced.
Since the Supreme Court broke up the American Tobacco trust in 1912, the American tobacco industry "remained under the control of the giants," a small number of large corporations with oligopoly market power (Sobel, 1978, p. 125). The first manufactured, mass-marketed cigarettes, Camels, were introduced in 1913 by R.J. Reynolds. The giants have competed primarily through advertising whereby they differentiate their brands and, to a lesser extent, by introducing new brands.
In 1993, the largest companies and their share of the American domestic market for cigarettes were as follows: Philip Morris, 42.2 percent, RJR Nabisco, 30.6 percent, Brown & Williamson (owned by a British company, B.A.T.), 11 percent, Lorillard 7.1 percent, American Tobacco 6.7 percent and the Liggett Group 2.4 percent (Hilts, 1994, June 18, p. A1). The most dominant firm in the industry is Philip Morris, a diversified conglomerate which also owns Kraft Foods and Miller Brewing, followed by RJR Nabisco. Sales of cigarettes accounted for 42 percent of Philip Morris' sales in 1993 and 56 percent of its net income (Matthews, 1994, pp. A1, A4). Largely because of cigarette sales, Philip Morris is "one of the most profitable companies in the world" (Frazer, 1996, p. 43). The cigarette industry globally produced in 1995 $56 billion in annual revenues. Although domestic cigarette sales have been flat in recent years, overseas sales are...