Cigarette Oligopoly

Cigarette Oligopoly Market Chayleen Marquis Benedictine University Author Note This research is being submitted on May 2, 2010, for Professor Raymond Bell’s MBA 611 course at Benedictine University by Chayleen Marquis. The cigarette market is one that is known to everyone. From magazine advertisements to constructive commercials people have been exposed to this market starting at a young age. The constant visuals of the advertisements as well as the free advertising that occurs daily with people smoking outside their office, in their car, and outside the night life scene the cigarette market has a benefit of using the free advertising as a benefit to their company at no cost. The cigarette market is a clear example of an oligopoly market because it is mostly run by a few large firms such as Philip Morris USA, Commonwealth Inc, Lorillard Inc and Reynolds American Inc. Due to the fact that an oligopoly market is hard to not only come into but also basically controlled by these large firms any new competitor is going to have a difficult time entering this market, being profitable in comparison to these firms and really having any type of say in the price or the output. A benefit of being an oligopoly is the fact that the prices are not determined for them but the larger firms more or less make the prices in reflection of the coordination amongst each other. Essentially the large firms come together and decide what price they would like to see and then all of the cigarettes cost the same amount across the board. Of course one concern that oligopoly’s must make sure that they are not be involved with is price fixing. Price fixing is when the competitors of a market fix the product price to avoid competition within their market, while at the same time not being fair to the consumers of the product in regards to the price. The price fixing does not always happen between the competitors but it also can be a factor between manufacturers and

References: Thomas, C. R., & Maurice, S. C. (2008). Managerial Economics (9th ed.). New York, NY : McGraw-Hill Irwin. Market Information-Philip Morris USA. (n.d.). Retrieved April 26, 2010, from http://www.pmusa.com/ed/ cms/Company/Market_Information/default.aspx