tag:blogger.com,1999:blog-8237846547805652402.post5600766638493644780..comments2014-02-03T14:46:43.219-05:00Comments on EP-ology by Carl V. Phillips: A bit more on the economics of cigarette (dis)brandingCarl V Phillipshttp://www.blogger.com/profile/01919902852457771666noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-8237846547805652402.post-75053192938975487372012-08-21T09:51:47.981-04:002012-08-21T09:51:47.981-04:00Plain packaging - common sense or nonsense? You de...Plain packaging - common sense or nonsense? You decide...Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-8237846547805652402.post-91129066241413667482012-08-20T08:04:03.536-04:002012-08-20T08:04:03.536-04:00You are right that I intentionally simplified out ...You are right that I intentionally simplified out (ignored) the fact that there are at least three distinct elements of the black market, as I mentioned a few posts ago (ep-ology.blogspot.com/2012/07/unhealthful-news-216-smuggled.html). I mentioned counterfeiting but then went on to discuss what seems to be the dominant part of the black market in the long-run, the grey market for generic product that would be legal if taxes were paid (and other regulations adhered to). The third element is what you note, the diversion of legitimate product. Historically that would have been motivated by tax differences, but you are probably right that there would be a prestige market for branded packs anywhere that forced plain packaging on the legal market.<br /><br />An interesting idea, that TCI wants the illicit market to thrive. The dominant players in TCI clearly want to hurt the legitimate producers, even if it does nothing for public health -- indeed, even if it hurts public health. The black market has always been seen as just a side effect of that. But it is quite clear to me that TCI is more anti-THR than they are anti-smoking -- I have seen that up-close. They need to make sure that tobacco/nicotine users are doing something harmful, because if they are using non-invasive low-risk alternatives there will be no support for prohibition. So why not extend that logic to them being pro-black-market, something else that makes tobacco use more harmful than it needs to be, so they can justify continuing to exist as a prohibitionist industry. It does make sense.<br /><br />It is harder to see or be sure, I guess, because if it is so, then the cynical corporate brains behind the TCI have effectively kept their trained monkeys out front to distract us decrying the black market and insisting that they will be able to prevent its expansion. This contrasts with THR where, despite some feeble efforts to try to coopt the concept, they have not tried to hide that they are on the anti-public-health side. But, yeah, hmmmm. I will definitely have to consider that possibility as I think about this more.Carl V Phillipshttps://www.blogger.com/profile/01919902852457771666noreply@blogger.comtag:blogger.com,1999:blog-8237846547805652402.post-28727009730291674902012-08-20T06:58:35.389-04:002012-08-20T06:58:35.389-04:00Thanks. Maybe the problem is the general uncommon...Thanks. Maybe the problem is the general uncommonality of common sense. I agree that common sense is sufficient to realize that raising taxes after de-branding the packages will tend to increase the flight to substitute markets, including the black market. I am not sure, though, that common sense is enough to figure out that taxes will need to decrease with plain packaging (assuming they are already at the maximum for doing their intended jobs, which is close to true, and that the goal is to keep them there), or that raising them will probably have even greater unwanted consequences after the de-branding than it would now. Those points were not obvious to me, anyway, until I ran through an equilibrium analysis.Carl V Phillipshttps://www.blogger.com/profile/01919902852457771666noreply@blogger.comtag:blogger.com,1999:blog-8237846547805652402.post-19740994408714081262012-08-20T04:25:44.122-04:002012-08-20T04:25:44.122-04:00Call me cynical, but I honestly believe that the t...Call me cynical, but I honestly believe that the tobacco control industry (TCI) **wants** the illicit market to thrive. If a higher percentage of smokers turn to the illicit market, then that is a statistic TCI can use for further laws against tobacco products, i.e. smokers are more likely to be criminals so let's criminalise smoking even more. The goal for TCI is prohibition and/or abolition. The more perceived "crime" associated with tobacco use, the more likely they'll be able to influence politicians for further tobacco control measures, such as licensing smokers, or requiring a prescription before they can ban tobacco altogether. <br /><br />However, in respect of plain packaging, there is another scenario to consider. The illicit market also will be able to raise prices on genuine, illegally-imported branded products. The consumer's perceived value (or image) of a branded pack versus the government's pack of hate (plain pack) will afford an opportunity for black marketers to sell those branded goods at a premium price in the illicit market. Still cheaper than duty paid tobacco products, but now the illicit market makes much more money. Likewise, the counterfeit market will also capitalise on a branded pack, even if that branding is dodgy. People who obtain genuine branded products from other markets will be considered as having a higher status.<br /><br />It's kind of like selling the same product but with different designs in two markets, with one market being envious of the other's. For instance, one version of the same product is branded with cute "Hello Kitty" logos and designs, and the other is a simple, plain black plastic. The Hello Kitty version will be viewed as a "designer" product by consumers, more valuable, more special, so the people in the plain black plastic market will seek means of getting their hands on the designer brand. It's the same product inside, just a different design on the outside. Those in the plain black plastic market who do get the designer version will consider their version superior to the one that is available in their home market. The Hello Kitty branded version cost them a bit more, so it has more value. It will be considered exclusive, and trendy. Those that have it are better-to-do than those who don't have it. <br /><br />Again, all of this plays into the hands of TCI. They want this to happen, so they denounce smokers (and so that they can have something to do for the next few decades...)Jayhttps://www.blogger.com/profile/18404807971134554522noreply@blogger.comtag:blogger.com,1999:blog-8237846547805652402.post-82467608535801765912012-08-19T23:19:44.912-04:002012-08-19T23:19:44.912-04:00Carl, excellent analysis and well explained for th...Carl, excellent analysis and well explained for those who need the explanations. But one doesn't have to be an economist. A little bit of common sense will lead to the same conclusion. But since when has common sense been the ANTZ forté? <br /><br />Iro C.A.G.E.https://www.blogger.com/profile/08720876700472441565noreply@blogger.com