Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, October 6, 2010

Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry

Posted by D. Daniel Sokol

Federico Ciliberto (Virginia) Nicolai V. Kuminoff (Arizona State) explore Public Policy and Market Competition: How the Master Settlement Agreement Changed the Cigarette Industry.

ABSTRACT: 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.

http://lawprofessors.typepad.com/antitrustprof_blog/2010/10/public-policy-and-market-competition-how-the-master-settlement-agreement-changed-the-cigarette-indus.html

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Comments

Its informative post it provides a lots of information related to the topic also add new points related to the topic.

Posted by: joe raman | Oct 8, 2010 5:25:00 AM

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